Lister's theory of infant industry protection

Richard Cobden and the Peelites have been recognized as the key architects of free-trade theory, but it was actually Robert Lowe, the Liberal politician who served as Finance Minister under Benjamin Disraeli, who codified the notion of protectionism. Lowes views, known as the infant industry argument, form the basis for todays industrial protection policies.

Lowe argued that there were certain stages of economy development, and in order for certain sectors of the economy to mature, the government had to provide protection to the nascent industries. In his 1851 work, The Resources of British India, Lowe wrote that a “country in an early stage of progress… has naturally a very limited supply of capital which it is able to devote to industrial purposes.” While this capital could be used to improve existing productive capacities, a lack of existing production capabilities or comparative advantages at home, Lowe argued, was a signal that a particular industry or activity was best left alone, and his notion of protectionism was a signal to leave those activities alone so they could develop over time.

Lowe argued that these protective measures would be automatically removed once the industry reached a certain level of development and could compete with more established industries abroad. In this way, Lowe reasoned, industry protection provided a way for a country to foster the growth of industries that could not compete on the world market, allowing them to develop at home, and eventually become competitive enough to survive on the open market. This view was in line with the “fair trade” philosophy of the 19th century, in which trade was seen as a means to an end, and not an end in itself.

Lowes views were later refined by William Edward Forster, another Liberal lawmaker and an associate of Lowe. Forster spoke of protective industries in terms of “advantages” or “ineligibility of competing with foreigners,” and drew a distinction between barriers to free trade and what he called “temporary protections” that could be used to spur competition, innovation, and growth. This line of thought provided the foundation for what became known as “infant industry protection.”

In 1851, the Free Trade Act was finally passed, largely thanks to Lowe and his associate Forster. The act did away with tariffs on exports and imports, and abolished a number of taxes that had been in place since the 1600s. Although the act was primarily an exercise in Economic Liberalism, Lowe and Forster saw it as a way to foster growth in nascent industries that would not be able to survive on the open market. It laid the groundwork for an industrial renaissance in Great Britain and many of her former colonies, as well as setting the stage for Continental Europe to engage in similar experiences in the decades to come.

Lowe and Forsters views on industrial protection were eventually adopted by other countries around the world. For example, in the United States, where industrial protection had its roots in the tariff acts of 1824, tariffs and protection under the Merchants Act of 1878 and its successors allowed the nations steel, iron, and coal industries to gain a foothold in the world markets. Today, most of the industrialized world has adopted policies based on this idea, either by imposing tariffs or providing subsidies and other incentives to encourage production and entrepreneurship in key industries.

Lowes and Forsters views are still reflected in modern industrial protection policies. Most governments still use temporary protection policies to nurture and protect the “infant” industries that may not be able to compete with well-established international firms. Lowe and Forster’s approach to industrial protection provided a means by which economies could develop in a sustainable fashion even despite imperfect international competition. While it is no longer the only justification for protectionism, the “infant industry argument” of Lowe and Forster still provides a useful frame for understanding global trade.

Adam Smith, a famous political economist, advocated a hands-off government in terms of economic regulation, believing in the invisible hand of the market that would naturally produce an efficient outcome. In the 19th century, however, the emergence of large, heavily industrialized production facilities using steam technology paid greater heed to the regulation of the British economy.

Perhaps the most influential thinker on the issue of industrial regulation during this time was David Ricardo and his iron law of wages, which held that wage rates couldnt increase depending on the number of employees. This led to the formation of the first workers union in the late 1830s, as well as a call for more economic regulation from the government.

It was German-born economist Friedrich List who, in 1841, proposed the concept of industrial protectionism as a way of boosting the economy, pointing out that allowing infant industries to mature or unfold over time would eventually lead to advantages over foreign markets.

However, it was the British economist Richard Cobden who popularized the idea of industrial protectionism in the United Kingdom. Cobden argued that protecting infant industries would be a boon to domestic producers while still allowing foreign trade. He even went further, arguing that industrialized nations should form a free trade pact with one another, to share resources and create a more level playing field for economic competition.

Finally, it was the French economist, Leonce de Lavergne Liéster, who, in the late 19th century, legitimized international treaties on industrial protectionism. Unlike Friedrich List, Liéster advocated for the idea of gradualism, allowing for gradual liberalization over time instead of immediate, sweeping change. He argued that government intervention in the economy should be limited, but strategic in order to be beneficial.

Overall, what is evident is that industrial protectionism, while the subject of hot debate among economists, has been one of the key catalysts for growth in many modern economies. It was through the work of these economists, that protectionism has become a tool used by governments to ensure industry sustainability and promote economic growth.