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The infant industry argument is an
economic An economy is an area of the production, distribution and trade, as well as consumption of goods and services. In general, it is defined as a social domain that emphasize the practices, discourses, and material expressions associated with th ...
rationale for trade
protectionism Protectionism, sometimes referred to as trade protectionism, is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulation ...
. The core of the
argument An argument is a statement or group of statements called premises intended to determine the degree of truth or acceptability of another statement called conclusion. Arguments can be studied from three main perspectives: the logical, the dialecti ...
is that nascent industries often do not have the
economies of scale In microeconomics, economies of scale are the cost advantages that enterprises obtain due to their scale of operation, and are typically measured by the amount of output produced per unit of time. A decrease in cost per unit of output enables ...
that their older competitors from other countries may have, and thus need to be protected until they can attain similar economies of scale. The logic underpinning the argument is that trade protectionism is costly in the short run but leads to long-term benefits.


Early articulations

The argument was first fully articulated by the first
United States Secretary of the Treasury The United States secretary of the treasury is the head of the United States Department of the Treasury, and is the chief financial officer of the federal government of the United States. The secretary of the treasury serves as the principal a ...
Alexander Hamilton Alexander Hamilton (January 11, 1755 or 1757July 12, 1804) was an American military officer, statesman, and Founding Father who served as the first United States secretary of the treasury from 1789 to 1795. Born out of wedlock in Charle ...
in his 1790
Report on Manufactures The Report on the Subject of Manufactures, generally referred to by its shortened title Report on Manufactures, is the third major report, and ''magnum opus'', of American Founding Father and first United States Treasury Secretary Alexander Hami ...
. Hamilton professed that developing an
industrial base Manufacturing is the creation or production of goods with the help of equipment, labor, machines, tools, and chemical or biological processing or formulation. It is the essence of secondary sector of the economy. The term may refer to a range ...
in a country was impossible without protectionism because import duties are necessary to shelter domestic "infant industries" until they could achieve
economies of scale In microeconomics, economies of scale are the cost advantages that enterprises obtain due to their scale of operation, and are typically measured by the amount of output produced per unit of time. A decrease in cost per unit of output enables ...
. The argument was systematically developed by American
political economist Political economy is the study of how economic systems (e.g. markets and national economies) and political systems (e.g. law, institutions, government) are linked. Widely studied phenomena within the discipline are systems such as labour m ...
Daniel Raymond Daniel Raymond (1786–1849) was the first important political economist to appear in the United States. He authored ''Thoughts on Political Economy'' (1820) and ''The Elements of Political Economy'' (1823). Economic theory He theorized that "lab ...
, and was later picked up by economist
Friedrich List Georg Friedrich List (6 August 1789 – 30 November 1846) was a German-American economist who developed the "National System" of political economy. He was a forefather of the German historical school of economics, and argued for the German Custom ...
in his 1841 work ''The National System of Political Economy,'' following his exposure to the idea during his residence in the United States in the 1820s. Chang, Ha-Joon
"Kicking Away the Ladder: How the Economic and Intellectual Histories of Capitalism Have Been Re-Written to Justify Neo-Liberal Capitalism"
''
Post-Autistic Economics Review ''Real-World Economics Review'' is a peer-reviewed open access academic journal of heterodox economics published by the "Post-Autistic Economics Network" since 2000. Since 2011 it is associated with the World Economics Association. It was known fo ...
''. 4 September 2002: Issue 15, Article 3. Retrieved on 8 October 2008.
List criticized Britain for advocating free trade to other countries given that Britain had obtained its economic supremacy through high tariffs and government subsidies. List stated that "it is a very common clever device that when anyone has attained the summit of greatness, he kicks away the ladder by which he climbed up, in order to deprive others of the means of climbing up after him."


1980s Brazil

Infant industry protection is controversial as a policy recommendation. As with the other economic rationales for protectionism, it is often abused by
rent seeking Rent-seeking is the act of growing one's existing wealth without creating new wealth by manipulating the social or political environment. Rent-seeking activities have negative effects on the rest of society. They result in reduced economic effi ...
interests. In addition, countries that put up
trade barrier Trade barriers are government-induced restrictions on international trade. According to the theory of comparative advantage, trade barriers are detrimental to the world economy and decrease overall economic efficiency. Most trade barriers work o ...
s to imports often face retaliatory barriers to their exports, potentially hurting the same industries that infant industry protection is intended to help. Even when infant industry protection is well-intentioned, it is difficult for governments to know which industries they should protect; infant industries may never grow up relative to adult foreign competitors. During the 1980s Brazil enforced strict controls on the import of foreign
computers A computer is a machine that can be programmed to carry out sequences of arithmetic or logical operations (computation) automatically. Modern digital electronic computers can perform generic sets of operations known as programs. These prog ...
in an effort to nurture its own infant computer industry. This industry never matured; the technological gap between Brazil and the rest of the world actually widened, while the protected industries merely copied low-end foreign computers and sold them at inflated prices.


Recommendation to the United Nations

In his 2000 report to the
UN Secretary-General The secretary-general of the United Nations (UNSG or SG) is the chief administrative officer of the United Nations and head of the United Nations Secretariat, one of the six principal organs of the United Nations. The role of the secretary- ...
,
Ernesto Zedillo Ernesto Zedillo Ponce de León (; born 27 December 1951) is a Mexican economist and politician. He was 61st president of Mexico from 1 December 1994 to 30 November 2000, as the last of the uninterrupted 71-year line of Mexican presidents from t ...
recommended "legitimising limited, time-bound protection for certain industries by countries in the early stages of industrialisation", arguing that "however misguided the old model of blanket protection intended to nurture import substitute industries, it would be a mistake to go to the other extreme and deny developing countries the opportunity of actively nurturing the development of an industrial sector".


History of implementation

Many countries have successfully industrialized behind tariff barriers, including leading current advocates of
neoliberal economics Neoliberalism (also neo-liberalism) is a term used to signify the late 20th century political reappearance of 19th-century ideas associated with free-market capitalism after it fell into decline following the Second World War. A prominent fa ...
United States and Britain. From 1816 through 1945, tariffs in the United States were among the highest in the world. According to
Ha-Joon Chang Ha-Joon Chang (; ; born 7 October 1963) is a South Korean institutional economist, specialising in development economics. Chang is the author of several widely discussed policy books, most notably ''Kicking Away the Ladder: Development Strateg ...
, "almost all of today's rich countries used tariff protection and subsidies to develop their industries". A study of French cotton producers during the
Napoleonic Wars The Napoleonic Wars (1803–1815) were a series of major global conflicts pitting the French Empire and its allies, led by Napoleon I, against a fluctuating array of European states formed into various coalitions. It produced a period of Fre ...
found that regions which were protected from international trade with Britain due to blockades of British shipping, experienced greater growth in mechanized cotton output than regions which continued to have close trade with Britain. Canada developed its infant industries, while facilitating the settlement of the Canadian West through immigration and railway construction under the
National Policy The National Policy was a Canadian economic program introduced by John A. Macdonald's Conservative Party in 1876. After Macdonald led the Conservatives to victory in the 1878 Canadian federal election, he began implementing his policy in 1879. Th ...
(1879–1950s) following an earlier failed experiment in free trade with the United States.
South Korea South Korea, officially the Republic of Korea (ROK), is a country in East Asia, constituting the southern part of the Korea, Korean Peninsula and sharing a Korean Demilitarized Zone, land border with North Korea. Its western border is formed ...
and Taiwan are more recent examples of rapid industrialization and economic development with major government subsidies, foreign exchange controls, and high tariffs to protect selected industries. In
Latin America Latin America or * french: Amérique Latine, link=no * ht, Amerik Latin, link=no * pt, América Latina, link=no, name=a, sometimes referred to as LatAm is a large cultural region in the Americas where Romance languages — languages derived ...
, many countries have implemented economic policies which establish high tariffs and other barriers to international trade, such as Brazil. Many Latin American economists have contributed to the development of theories related to
economic nationalism Economic nationalism, also called economic patriotism and economic populism, is an ideology that favors state interventionism over other market mechanisms, with policies such as domestic control of the economy, labor, and capital formation, inclu ...
, which in turn promotes the protection of infant industries.


See also

*
Industrial policy An industrial policy (IP) or industrial strategy of a country is its official strategic effort to encourage the development and growth of all or part of the economy, often focused on all or part of the manufacturing sector. The government takes m ...


References

{{reflist Arguments Economic ideologies Protectionism