Kicking Away the Ladder. Development Strategy in Historical Perspective

It was the USA, and not Germany as is commonly believed, which first systematized the logic of infant industry promotion that Britain had used so effectively in order to engineer its industrial ascent. The first systematic arguments for infant industry were developed by American thinkers such as Alexander Hamilton and Daniel Raymond, while Friedrich List, the supposed intellectual father of the infant industry protection argument, first learned about it during his exile in the USA.

The US government put this logic into practice more diligently than any other country for over a century (1816-1945). During this period, the USA had one of the highest average tariff rates on manufacturing imports in the world. Given that the country enjoyed an exceptionally high degree of ‘natural’ protection due to high transportation costs, at least until the 1870s, it seems reasonable to say that throughout its industrial catching-up the US industries were the most protected in the world. When the maverick American right-wing populist politician Pat Buchanan says that free trade is an ‘un-American’ thing, he does in a way have a point.

It is certainly true that the US industries did not necessarily need all the tariff protections that were put in place, and that many tariffs eventually outlived their usefulness. However, it is also clear that. the US economy would not have got where it is today without strong tariff protection at least in some key infant industries. The role of the US government in infrastructural development and supporting R&D, which continues to this day, also needs to be noted.

D. The myth of France as the dirigiste counterpoint to laissez-faire Britain

The pre-revolutionary French state was actively involved in industrial promotion. However, this ‘Colbertist’ tradition was largely suppressed due to the libertarian ideologies of the French Revolution and the ensuing political stalemate that over the next century and half produced a series of weak and visionless (if not actively backward-looking) governments.

Thus, despite its public image as an inherently dirigiste country, France ran a policy regime in many ways more laissez-faire than either Britain or especially the USA throughout most of the nineteenth century and the first half of the twentieth century. For example, between the 1820s and the 1860s, the degree of protectionism actually remained lower in France than in Britain.

The laissez-faire period in French history was largely associated with the country’s relative industrial and technological stagnation – a fact that indirectly proves the validity of the infant industry argument. It is largely because of the country’s industrial success through the decidedly interventionist strategy pursued after the Second World War that it has come to acquire its current image as inherently interventionist.

E. The limited use of trade protection in Germany

Despite its frequent identification as the home of infant industry protection, Germany never really used tariff protection extensively. Until the late nineteenth century, it had one of the most liberal trade regimes in the world, although some key heavy industries did receive substantial tariff protection.

However, this does not mean that the German state was laissez-faire in the way that its French counterpoint was during most of the nineteenth and the first half of the twentieth centuries. As the early Prussian experience from the eighteenth century onwards best illustrates, infant industries could be – and were – promoted through means other than tariffs, including state investment, public-private cooperation and various subsidies.

Although the subsequent development of the private sector, partly due to the success of such attempts, made direct state intervention unnecessary and unpopular, the state still played an important ‘guiding’ role. This was particularly the case in relation to some heavy industries in the late nineteenth and early twentieth centuries (which during this time were also given strong tariff protection). This was also the period when the German state pioneered the establishment of social welfare institutions in an attempt to defuse revolutionary agitation and establish social peace (see section 3.2.6.A in chapter 3 for . further details).

Therefore while Germany can hardly be described as the same kind of laissez-faire state as France in the nineteenth and early twentieth centuries, state intervention in Germany’s main catching-up period was not as extensive as some people think, particularly in relation to tariff protection.

F. Sweden was not always the ‘small open economy’ that it later came to represent.

Although its does not require as dramatic revision as the cases discussed above, the Swedish experience also contains some myths that need dispelling.