Kicking Away the Ladder. Development Strategy in Historical Perspective

The factory system would, in all probability, not have taken place in America and Germany. It most certainly could not have flourished, as it has done, both in these states, and in France, Belgium, and Switzerland, through the fostering bounties which the high-priced food of the British artisan has offered to the cheaper fed manufacturer of those countries’.[45]

Symbolic though the repeal of Corn Law may have been, the real shift to free trade only happened in the 1850s. It was only after Gladstone’s budgets of the 1850s, and especially that of 1860, in conjunction with the Anglo-French free trade treaty (the so-called Cobden-Chevalier Treaty) signed that year, that most tariffs were eliminated. The following passage succinctly describes the magnitude of trade liberalization that happened in Britain during the 1850s. ‘In 1848, Britain had 1,146 dutiable articles; by 1860 she had forty-eight, all but twelve being revenue duties on luxuries or semi-luxuries. Once the most complex in Europe, the British tariff could now be printed “on half a page of Whitaker’s Almanack” ‘.[46]

It is important to note here that Britain’s technological lead that enabled this shift to a free trade regime had been achieved ‘behind high and long-lasting tariff barriers’ .[47] It is also important to note that the overall liberalization of the British economy that occurred during the mid-nineteenth century, of which trade liberalization was just a part, was a highly controlled affair overseen by the state, and not achieved through a laissez-faire approach.[48] It should also be pointed out that Britain ‘adopted Free Trade painfully slowly: eighty-four years from The Wealth of Nations to Gladstone’s 1860 budget; thirty-one from Waterloo to the ritual victory of 1846’.[49]

Moreover, the free-trade regime did not last long. By the 1880s, some hard-pressed British manufacturers were asking for protection. By the early twentieth century, reintroduction of protectionism was one of the hottest issues in British politics, as the country was rapidly losing its manufacturing advantage to the USA and Germany: testimony to this was the influence of the Tariff Reform League, formed in 1903 under the leadership of the charismatic politician Joseph Chamberlain.[50] The era of free trade ended when Britain finally acknowledged that it had lost its manufacturing eminence and re-introduced tariffs on a large scale in 1932.,[51]

2.2.2. USA

As List pointed out (see Chapter 1), Britain was the first country successfully to launch an infant industry promotion strategy. However, its most ardent user was probably the USA – the eminent economic historian Paul Bairoch once called it ‘the mother country and bastion of modern protectionism’.[52]

This fact is rarely acknowledged in the modern literature, however, especially that coming out of the USA, and even many otherwise knowledgeable people do not seem to be aware of it. No less an economic historian than Clive Trebilcock, an authority on European Industrial Revolution, when commenting on the introduction of 1879 tariffs in Germany, stated that tariffs were going up all over the world, including ‘even free-trade America’.[53]

Even when the existence of high tariffs is acknowledged, their importance is severely downplayed. For example, in what was until recently the standard overview of US economic history, North mentions tariffs once, only to dismiss them as an insignificant factor in explaining US industrial development. He argues, without bothering to establish the case and by citing only one highly-biased secondary source (the classic study by F’Taussig, 1892), ‘while tariffs became increasingly protective in the years after the Civil War, it is doubtful if they were very influential in affecting seriously the spread of manufacturing’.[54]

However, a more careful and unbiased reading of the history reveals that the importance of infant industry protection in US development cannot be overemphasized. From the early days of colonization in what later became the USA, protection of domestic industry was a controversial policy issue. To begin with, Britain did not want to industrialize the colonies and duly implemented policies to that effect (see section 2.3. for further details). Around the time of independence, Southern agrarian interests opposed any protection, while Northern manufacturing interests – represented by, among others, Alexander Hamilton, the first Secretary of the Treasury of the USA (1789-95) – wanted it.[55]