openEconomy, 'Protectionism: all bad?', Pranav Bihari, 15 Apr 2009 wrote:The theory that a country must protect its 'infant' industries in developmental stages before exposing them to external competition is not new. It has been practiced from the days of protecting the wool industry in the UK in the 14th century to the post war protection afforded to auto companies like Toyota in Japan. Most developed countries in the world both in the west and the east, including Britain, America, Japan, and South Korea, have used protectionism strategically to promote their economic interests, especially in the early stages of their economic development. Many of them continue to do so in significant if less overt ways.
The more an economy adds value to the raw materials, the more prosperous it is in the long run. This is a tried and tested recipe for economic development. Hence, economies engaged in processing and manufacturing industries, like Japan and Germany, mostly fare far better than those that depend on exporting raw materials, like the oil rich Nigeria or the coffee rich Ethiopia. The notion, or more correctly the dogma, that simply practicing free trade would lead developing countries to prosperity has been denounced by economists (such as Ha-Joon Chang, University of Cambridge) who have cared to base their analysis on historical evidence rather than armchair models.
This had an effect that was really interesting, although short-lived, because every action has ripple effects that slide through history in ways that are hard to see at first, but become apparent later on. The Plantagenet Dynasty and the woollen producers enjoyed a surge of business, as it became more logical to keep the raw wool at home and develop processing and manufacturing know-how to the export the completed woolen products to places on the continent.
This early industrialisation process clawed a lot of peasants into the urban areas that would do this work. It also created a need for more shipbuilding inside England. By the 15th century, England practically dominated the woollen products trade and had put many of its regional competitors out of business, although that trade was on the verge of decline as new products were beginning to replace that anyway. But who cares about that, there was no way that it could last forever, right? New industries would arise.
It is the ripple effects that are the most important. In other words, what the state's actions then, created a springboard for later. The moving of peasants into urban centres during this early move toward industrialisation - although a horrific action carried out so inhumanely by capitalists - actually would prove fortuitous 200-ish years later, when the time came for the UK to become the largest war and taxation state in Europe under William Pitt or whoever it was. The population would be situated geographically in such a way that the state could carry out that taxation extremely efficiently* 'in-house'. In contrast, their continental competitors - for reasons of bad infrastructure development polices, the lay of the land, entrenched semi-autonomous regional institutions - were saddled with a more decentralised system of having to 'outsource' the collection of taxes to regional contractors, which deprived them of the ability to match Britain's revenue intake and thus could not match its warmaking power.
This protectionism-to-tax-regime was one of the largest factors in the development of the UK's impressive war-machine and thus its ability to acquire more natural resources in far flung regions of the world which would be under its political control, which in turn could be taxed to further develop the UK's impressive war-machine and the social services that Britons have the opportunity to demand at a later conjuncture in their domestic politics.
Classical liberals and libertarians and other 'freedom-loving' people would probably be appalled by all of this, the idea that the British state's bureaucrats acted as a so-called 'parasite' in order to empower itself to facilitate the creation of the British Empire. "What about the 'destruction of wealth' that was caused by the tariffs and taxes? What about the Africans who were later smashed by the resulting war-machine? Don't you feel any compassion, Rei?", they might ask.
I would say this - "that's what had to be done in order to make the best out of a mess that capitalism had wrought because of you".
The taxes and tariffs created by the bureaucrats were not a 'destruction of wealth', they were a diversion of wealth into long-term holding pools that would ensure the creation of greater wealth later. It had the ability to be delayed gratification on an ethnic level. And thank goodness.
Rather than eating up the gains of raw wool export immediately in the 13th century, the British people were made to delay their gratification - as a group - and to reorganise society in such a way that made it entirely suitable and amenable to prosecuting the wars between population groups that would engulf the world in subsequent eras.
Laotse once said, "Heaven and Earth are pitiless". That's right, and there is no universal morality, humans make their own morals. If a girl is starving in Coventry, it is not unreasonable for those people to seek to make society stronger so that she can be protected from starvation. Fighting is the way to survive in the world, and if it means that the British state had to levy taxes and fight wars, then that is simply unfortunate.
That's how Britain was able to make something of itself despite being such a small little island with so few natural resources. The lesson is clear.
Plucky little island, be strong!
If only it had become strong enough later on to be able to suspend the internal conflicts within Britain itself that were caused by capitalism. If only various conjunctures had not been navigated in ways that favoured the financiers. Then we'd be able to recapture that warm and kind spirit of the pre-capitalist village community in the modern era, despite everything...
* To back up this wonderful argument I will use ideas from:
- Optimal Rent Extraction in Pre-industrial England and France – Default Risk and Monitoring Costs, Mikael Priks, CESifo Working Paper No. 1464, May 2005 and
- Fiscal Exceptionalism: Great Britain and its European Rivals, Department of Economic History, London School of Economics, Working Paper No. 65/01, Patrick K. O’Brien, October 2001.
Optimal Rent Extraction in Pre-industrial England and France – Default Risk and Monitoring Costs, Mikael Priks, CESifo Working Paper No. 1464, May 2005, pg 17 - 19 wrote:
Let it not be said that we are 'purely emotional' about this.