combine their strength to turn the machine bottom-upwards, and read the legend: otherwise it would go unread’.[239]
2.4. Policies for Industrial Development:
Some Historical Myths and Lessons
In this chapter, I have examined the history of industrial, trade and technological (ITT) policies in a number of NDCs when they were developing countries – Britain, the USA, Germany, France, Sweden, Belgium, the Netherlands, Switzerland, Japan, Korea, and Taiwan. The picture that emerges from this historical review is fundamentally at odds with the picture held by Neo-Liberal commentators, and indeed by many of their critics.
In this final section of the chapter, I first summarize my review of the role of ITT policies in the development of a number of key individual NDCs (section 2.4.1). I then draw an overall picture from these country profiles and conclude that, while virtually all countries used infant industry promotion measures, there was considerable diversity across countries in terms of the exact policy mix (section 2.4.2). I then compare the ITT policies of the NDCs in earlier times with those of today’s developing countries and argue that, once we consider the productivity gap they need to overcome, today’s developing countries are actually far less protectionist than the NDCs themselves were in the past (section 2.4.3).
2.4.1. Some historical myths and facts about policies in earlier times
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.
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.
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.
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
