l:href='#ch2_87'>[87] Although some commentators doubt whether the overall national welfare effect of protectionism was positive, the US growth records during the protectionist period make this scepticism look overly cautious, if not downright biased.
Bairoch points out that, throughout the nineteenth century and up to the 1920s, the USA was the fastest growing economy in the world, despite being the most protectionist during almost all of this period.[88] There is also no evidence that the only significant reduction of protectionism in the US economy, between 1846 and 1861, had any noticeable positive impact on the country’s development. Most interestingly, the two best 20-year GDP per capita growth performances during the 1830-1910 period were 1870- 1890 (2.1 per cent) and 1890-1910 (two per cent) – both periods of particularly high protectionism.[89] It is hard to believe that this association between the degree of protectionism and overall growth is purely coincidental. Indeed, O’Rourke shows some statistical evidence from ten NDCs, including the USA, during the ‘liberal golden age’ of 1875-1914, to the effect that protection (measured by average tariff rates) was positively related to growth.[90]
Of course, as many people point out, tariff protection for some industries certainly outlived its usefulness. For example, despite the continuing debate on this issue.[91] it is widely agreed that by the 1830s, American cotton textile producers would not have needed protection, particularly in certain low-value-added segments of the market.[92] It is also very likely that even some of the necessary tariffs may have been set at excessively high levels due to interest-group pressures and the complicated horse-trading that has characterised the country’s policy making. Despite these qualifications it seems difficult to deny that, without infant industry protection, the US economy would not have industrialized and developed as fast as it did in its catching-up period.
Important as it may have been, tariff protection was not the only policy deployed by the US government in order to promote the country’s economic development during its catch-up phase. From the Morrill Act of 1862, and probably from as early as the 1830s, the government supported an extensive range of agricultural research. Measures used included the granting of government land to agricultural colleges and the establishment of government research institutes, such as the Bureau of Animal Industry and the Bureau of Agricultural Chemistry. In the second half of the nineteenth century, it expanded public educational investments – in 1840, less than half of the total investment in education was public, whereas by 1900 this figure had risen to almost 80 per cent – and raised the literacy ratio to 94 per cent by 1900. The role of the US government in promoting the development of transportation infrastructure, especially through the granting of land and subsidies to railway companies, was also critical in shaping the country’s developmental path.[93]
. It is important to recognize that the role of the US federal government in industrial development has been substantial even in the postwar era, thanks to the large amount of defence-related procurements and R&D spending, which have had enormous spillover effects.[94] The share of the US federal government in total R&D spending, which was only 16 per cent in 1930,[95] remained between one-half and two-thirds during the postwar years.[96] Industries such as computers, aerospace and the internet, where the USA still maintains an international edge despite the decline in its overall technological leadership, would not have existed without defence-related R&D funding by the country’s federal government. [97] The critical role of the US government’s National Institutes of Health (NIH) in supporting R&D in pharmaceutical and biotechnology industries, thus maintaining the US lead in these industries, should also be mentioned. Even according to the information provided by the US pharmaceutical industry association, only 43 per cent of pharmaceutical R&D is funded by the industry itself, while 29 per cent is funded by the NIH.[98]
During the nineteenth century, the USA was not only the strongest bastion of protectionist policies, but was also their intellectual home. At that time it was widely believed among US intellectuals that ‘the new country required a new economics, one grounded in different political institutions and economic conditions than those prevailing in the Old World’.[99] Some of them went so far as to argue that even internationally competitive US industries should have tariff protection because of the possibility of predatory dumping by large European enterprises, who, after decimating the American firms, would revert to monopolistic pricing.[100]
Well into the last quarter of the nineteenth century, most of the more original US economists of the period seem to have been strong advocates of infant industry protection. The well-known supporters of infant industry promotion, Daniel Raymond (who influenced Friedrich List) and Mathew Carey were the two leading economists of the early nineteenth century, while American economics during the mid-to late nineteenth century was dominated by Carey’s son Henry. Henry Carey was described as ‘the only American economist of importance’ by Marx and Engels in the early 1850s[101] and was one of Lincoln’s (somewhat frustrated) economic advisors.[102] Unfortunately, most of these economists have now been airbrushed out of the history of US economic thought, but it was they, rather than the American Classical economists (then regarded as second-rate by the British standard), who were the more prominent intellectual figures of the time.
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
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-
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 (
In 1879, however, Otto von Bismarck, the German Chancellor, introduced a great tariff increase to cement the political alliance between the
