Kicking Away the Ladder. Development Strategy in Historical Perspective

What is especially interesting to note here is that many US intellectuals and politicians during the country’s catch-up period clearly understood that the free trade theory advocated by the British Classical Economists was unsuited to their country. Reinert reports that, due to this concern, Thomas Jefferson tried (in vain) to prevent the publication of Ricardo’s Principles in the USA.[103] Reinert also cites from List’s work the comment by a US Congressman, a contemporary of List, who observed that English trade theory ‘like most English manufactured goods, is intended for export, not for consumption at home’ .[104]

As I mentioned earlier, Henry Clay, the most prominent protectionist politician of the early nineteenth century and Abraham Lincoln’s early mentor, named his economic policy platform the ‘American System’, in explicit opposition to what he called the ‘British System’ of free trade. Somewhat later, Henry Carey even argued that free trade was part of British imperialist system that consigned the USA to a role of primary product exporter.[105] It is also reported that during the 1860 election campaign, in which Carey played a key intellectual role, the Republicans in some protectionist states referred disparagingly to the Democrats as a ‘Southern- British- Antitariff-Disunion party [italics added]’.[106]

2.2.3. Germany

Germany is now commonly known as the home of infant industry protection, both intellectually and in terms of policies. However, historically speaking, tariff protection actually played a far less important role in the economic development of Germany than in that of the UK or the USA.

The tariff protection for industry in Prussia before the 1834 German customs union under its leadership (Zollverein) and that subsequently accorded to German industry in general remained mild. Trebilcock, an authority on German industrialization of the period, categorically states that ‘Zollverein tariffs were insufficient to provide effective “infant industry” protection; even the iron manufacturers went without tariff duties until 1844, and lacked successful protection well beyond this’ .[107] The Prussian state constantly resisted political pressures for higher tariffs by other member states of Zollverein. Although there were increases in tariffs in 1844 (on iron) and 1846 (on cotton yarn), these were relatively small. After that, the Zollverein tariff showed a general downward trend until the late 1870s, with a bilateral free trade agreement with France in 1862 and a reduction in steel duties in 1870.[108]

In 1879, however, Otto von Bismarck, the German Chancellor, introduced a great tariff increase to cement the political alliance between the Junkers (landlords) and the heavy industrialists – the so-called ‘marriage of iron and rye’ .[109] However, even after this, substantial additional protection was accorded only to agriculture and the key heavy industries, especially the iron & steel industry, and industrial protection in general remained low.[110] As can be seen from table 2.1, the level of protection in German manufacturing was one of the lowest among comparable countries throughout the nineteenth century and the first half of the twentieth century.

The relatively low tariff protection does not mean that the German state took a laissez-faire approach to economic development. Under Frederick William I (1713-40) and Frederick the Great (1740-86), the Prussian state, which eventually unified Germany, pursued a range of policies to promote new industries. The conventional measures such as tariff protection (which was not too significant on its own, as I have pointed out above), monopoly grants and cheap supplies from royal factories were of course used, but more important was the direct involvement of the state in key industries.[111]

When Frederick the Great came to power, Prussia was essentially a raw-material exporter, with woollen and linen clothes being the only manufactured export items. Continuing his father’s mercantilist policies, he promoted a large number of industries – especially textiles (linen above all), metals, armaments, porcelain, silk, and sugar refining – by providing, among other things, monopoly rights, trade protection, export subsidies, capital investments, and skilled workers from abroad.[112] Frederick also retained a number of business houses to function as (what would today be called) ‘management consultants’ in order to pioneer development of new industries, especially the cutlery, sugar-refining, metals and munitions industries. These ‘model factories’ were in many ways hothouse plants that would not have survived exposure to full market competition; however, they were important in introducing new technologies and generating ‘demonstration effects’.[113]