Kicking Away the Ladder. Development Strategy in Historical Perspective

A. Almost every successful country used infant industry protection and other activist ITT policies when they were ‘catching-up’ economies

My discussion in this chapter reveals that almost all NDCs had adopted some form of infant industry promotion strategy when they were in catching-up positions. In many countries, tariff protection was a key component of this strategy, but was neither the only nor even necessarily the most important component in the strategy. Interestingly, it was the UK and the USA, the supposed homes of free trade policy, which used tariff protection most aggressively (see sections Band C below).

The apparent exceptions to this historical pattern among the countries I have reviewed are Switzerland, the Netherlands and to a lesser extent Belgium, although even in these cases some qualifications need to be made. Switzerland benefited from the ‘natural’ protection accorded by the Napoleonic Wars at a critical juncture in its industrial development. The government of the Netherlands on the one hand used aggressive policies to establish its naval and commercial supremacy in the sixteenth and seventeenth centuries, and on the other set up industrial financing agencies and promoted cotton textiles industry in the 1830s. Belgium may have had a low average tariff rate in the nineteenth century, but the Austrian government that ruled it during most of the eighteenth century was a lot more protectionist, and certain sectors were heavily protected until the mid-nineteenth century. Having said all this, it is still reasonable to describe these three economies, or at the very least Switzerland and the Netherlands, as having developed under broadly liberal ITT policies.

It may be argued that these two economies refrained from adopting protectionist trade policies because of their small size and hence the relatively large costs of protection. However, this is not a persuasive explanation. For one thing Sweden, another small country, used infant industry protection successfully between the late nineteenth and early twentieth centuries, when it was trying to catch up with the more developed countries in a number of heavy industries. A more plausible reason for the absence of infant industry protection in our trio of small European countries is that, unlike Sweden, they were already highly technologically advanced by the early nineteenth century. They stood very close to the world’s technological frontier throughout the period of European Industrial Revolution, which meant that they simply did not need much infant industry protection (see section 2.2.6 for details).

Of course, against all these arguments, it may be said that the NDCs were able to industrialize independently of, or even despite, activist ITT policies. Many historical events are ‘over-determined’, in the sense that there is more than one plausible explanatory factor behind them; it is inherently difficult to prove that activist ITT policies, or for that matter any other factor in particular, was the key to the success of these countries.[240] However, it seems to be a remarkable coincidence that so many countries that have used such policies, from eighteenth-century Britain to twentieth-century Korea, have been industrial successes, especially when such policies are supposed to be very harmful according to the orthodox argument.

B. The myth of Britain as a free-trade, laissez-faire economy

Contrary to popular myth, Britain had been an aggressive user, and in certain areas a pioneer, of activist ITT policies intended to promote infant industries until it established its industrial hegemony so clearly in the mid-nineteenth century and adopted free trade.

Such policies, although limited in scope, date back to the fourteenth century (Edward III) and the fifteenth century (Henry VII) in relation to the wool trade, the leading industry of the time. Between Walpole’s trade policy reform of 1721 and the repeal of the Corn Laws in 1846, Britain had implemented the kinds of ITT policies that became famous for their use in the East Asian ‘industrial policy states’ of Japan, Korea and Taiwan after the Second World War. Many policies that we frequently think of as East Asian inventions – such as export subsidies and import tariff rebates on inputs used for exporting – were widely used in Britain during this period. In addition, it should be noted that even Britain’s free trade policy was motivated in part by its desire to promote its industries. Many of the strongest campaigners for free trade, including their leader Richard Cobden, believed that free imports of agricultural products by Britain would discourage manufacturing in competitor countries that would not have developed without the presence of the British Corn Laws.

C. The USA as ‘the mother country and bastion of modern protectionism’