Gibson Guitar's revenue $500 million/annually. They sell premier guitars. The 118 year old company has been raided by the BFBI, Homeland Security, and the Wildlife Fish & Game. They are accused of importing ebony and rosewood, protected species of slow-growth timber. The CEO has hired a lobbyist ($10,000)/month to get the 100 year-old Lacey Act changed. Gibson faces a $500,000 fine and prison time for some executives. The FBI shut down production on 1/18/2012 and confiscated 7000 fingerboards, over 300 fingerboards glued to the guitar necks, and 80 completed guitars. No charges have been filed to date. The first raid was in 2009 and they hired attorneys and began lobbying. The CEO stated that they have lost $2-3 million dollars. Currently they have huge customer loyalty, but the Lacey law says the FBI can confiscate any guitar with the protected rosewood. The CEO has R&D working on an alternate wood but the sound is not the same. What economic theory would you to apply to this case?
I've read about the Gibson case several times before.
The question concerns the economic theory "applied" to this case. I read that to mean that either a) the theory must "make sense" out of the case or b) that a theory can be embedded into the actions both of the US government and Gibson's response.
Let me hit both, since I think they overlap quite a bit.
Here are some basics:
1. First off, we are dealing with the basic concept of economic nationalism. This is, of course, a much older, mercantilist theory that governed political economy in the 18th and 19th century. In this case, India is the main actor - they have insisted that its wood products not be exported, since this is a fairly solid advantage India has in terms of its domestic production.
2. Dealing with nationalism is normative - how important is national sovereignty as a moral idea. In this case, again, India is the main variable. For them, their own woods are high quality and sought after, India seeks to protect and highly regulate its powerful comparative advantage in this respect. The concept is that India, while a signatory to most free trade laws, seeks to use state power to protect resources they consider either endangered or essential to building their own manufacturing economy at home.
3. The ...
Gibson Guitar Economic Theory is examined. Legal transparency is provided.