Ringo
Gold Member
Let's start with the 1780s, since all that came before that was an agrarian economy, with very little connection to the modern economy.
In the 1780s, Britain - for the first time in world history - saw the start of the Industrial Revolution.
New technologies, from looms and steam engines to puddling, changed everything. Machines made it radically cheaper to produce cloth.
Steam made it possible to mine coal and spin the wheels of the looms, and puddling gave quality iron.
Britain began a meteoric rise to power, becoming a power the likes of which the world had never known before.
At this very time, the other side of the Channel decided to open its doors to British goods (Anglo-French Treaty of 1786).
The markets were immediately filled with the industrial products of their neighbors.
Craftsmen began to go bankrupt, and factory workers tried to catch up with the British by buying machines and adopting new technologies.
But instead of an industrial revolution, another one began - 1789.
Crowds of angry workers, afraid that the machines would displace them, smashed factories. France delayed its industrial breakthrough and fell behind its neighbor for a long time.
Britain, which thanks to Cort obtained the technology of puddling and began to produce iron, gained a certain independence.
Previously it had been dependent on Sweden and Russia for iron; with charcoal needed for smelting, there was no other choice; the forests of the Urals and Kiruna burned to send new ships loaded with pig iron from St. Petersburg and Stockholm to London.
The British paid for this iron, thus supporting the economic development of their suppliers; new factories sprouted up in the Urals, the Russian army received more and more cannons and the Russian treasury more and more gold; all this allowed the empire to strengthen and subjugate its neighbors, winning victories over the Ottomans.
Now new technology made it possible to utilize the coal with which Britain was rich - and freed it from that dependence.
Russia didn't like it.
First Paul I and then Alexander I (under Napoleon's pressure in 1806, entering the Continental Blockade) broke off trade with Britain.
The result was the loss of a crucial partner at a key moment when it was the only one from which technological and trade advantages could be gained.
Metallurgy, which had been making brisk progress in the 18th century, was dealt a severe blow by being left without a major export market.
New technologies (pudeling) came late - in the 1820s and 1830s - and developed slowly and reluctantly; the domestic market alone was not enough to stimulate development.
In these two examples we see the deleterious effects of:
(a) trade liberalization (in France);
b) and protectionism (in Russia).
There is no universal prescription; sometimes one thing is harmful, sometimes another.
Let's take a look at the United States.
After the War of Independence, the US was an agrarian country with the rudiments of industry.
This did not bother the South.
The British cotton mills, around which new cities of a hundred thousand (Manchester in the first place) were rapidly springing up, consumed more, more and more raw materials; their appetite was insatiable.
And the slave economy of the South until 1861 perfectly satisfied that appetite; plantations grew and grew, exports to England steadily increased, Southern elites basked in luxury.
But there was one nuance.
Southerners naturally wanted to buy something with the money they received from the sale of cotton.
And the cheapest and best-quality manufactured goods were, of course, in England - a scale effect.
But in the North, where cotton and tobacco did not grow, they looked upon this with great disapproval; and at the first opportunity they began to impose duties on British goods.
The logic was clear; the northerners could not enjoy this feast of life (produce cotton, sell to the British, buy from them everything else, from carriages to rifles) anyway; and they wanted to sell their manufactured goods.
So arguments like “we can't afford to be an appendage of raw materials” came into play.
Ultimately, this was one of the causes of the Civil War; the industrial North naturally defeated the agrarian South, and then, fending off British competition with protectionist barriers, began to develop its own industry.
By the early 1900s, the task was complete; the United States had become the world's most powerful industrial power, surpassing the British Empire.
In Britain itself, free-traders and protectionists fought among themselves until mid-century.
Behind the protectionists were the “old” elites-the rich and powerful landowners who had no interest in having agricultural products imported into the country duty-free. .
Behind the freetraders were the “new” elites who had risen on industry and trade, owners of factories, newspapers and steamships; it was in their interests to trade duty-free with as many countries as possible, since their products were oriented to the rest of the world.
.And if the Russians or Germans flood England with cheap grain, so where is the sorrow?
It's a good thing; the workers will be able to buy more bread with their wages, and their standard of living and contentment will rise.
Will the farmers go bankrupt?
All the better for the factories; more laborers.
In the end, the free-traders win.
.
Adam Smith, one of the most prescient figures of the Enlightenment, was the first to formulate the basis of this ideology; his follower, Ricardo, developed the theory of “comparative advantage.”
It appeared that it was better for each country to produce what it was best at; why grow coffee in Sweden or smelt iron in Ethiopia, where ore and coal were scarce? Let the Ethiopians sell coffee to the Swedes and buy iron from them; each does what he is best at, and all are well.
Isn't that so?
At the same time, as if by itself, it turned out that England in these conditions is best to produce all industrial goods; after all, she is the earliest to start, she has the maximum concentration of specialists and technology.
And the rest can sell her, for example, grain, timber, other raw materials ....
But on the continent, these ideas were not particularly appreciated.
Particularly inspired by the ideas of Friedrich List, the German states that formed a customs union preferred to develop their own industry, even if it was a little worse and more expensive; but it was better to have their own rifles and cannons, not relying on the mercy of neighbors.
The Industrial Revolution spread across Europe in waves, starting from its center in England: Belgium, France, Prussia, Austria.
By the 1860s and 1870s it reached Russia, where the abolition of serfdom in 1861 strengthened the domestic market.
Protectionism ruled in the United States after the Civil War.
Railroads stretched across the continent, industrial cities sprouted - Detroit, Chicago - American corporations began to look at their neighbors, starting with Latin America, where American goods were already successfully competing with British goods; an effect of scale.
World War I, which had crippled the economies of colonial empires, was a gift of fate for American industry, steadily pulling away from all competitors.
America still clung to high duties in the first decades of the twentieth century.
Industrialists did not object to protectionism - why let in other people's goods, who needs unnecessary competitors?
The 1930 Smoot-Hawley Act, designed to protect domestic production during the Great Depression, was the apogee of this policy.
Age of Freetrade, however, is behind us;
Britain-which in the nineteenth century had been interested in it, and had even opened the door to its goods by force where it would not let them in amicably (the Opium Wars)-had lost its status as a leading industrial power by the 1930s.
Accordingly, it had little desire to see american competitors in its markets.
So, the colonial empires responded to American protectionism with their own duties.
World trade collapsed, unemployment increased massively, and in Japan the liberals were replaced by nationalists who believed that in the new conditions it was necessary to create their own domestic market at the expense of colonial conquests.
The beginning was Manchuria in 1931.
Later the same forces won in Germany; autarky became an integral feature of fascism.
In parallel, the super-protectionist USSR industrialized at a record pace.
In 1934, Roosevelt decided to launch a protectionist policy by passing the Reciprocal Trade Agreements Act.
It was based on the idea of mutual reduction of duties.
Free-trade was left behind, but customs barriers began to be gradually reduced.
As a result of the Second World War - extremely fortunate for the USA - there was a de facto dissolution of the world's main colonial empire, Britain; the markets of the former colonies opened up, American goods flowed there by the river. A golden age began in the United States.
By 1947, the U.S. had launched the GATT, the precursor to the WTO.
It was based on a simple idea: lower barriers between “our own”.
America, previously a bastion of protectionism, suddenly became a bastion of free trade.
True, there were a number of important caveats.
Although duties were reduced, the interests of farmers and steelworkers were shielded, helped by subsidies and quotas.
In the final analysis, the interests of the American economy, for all the pretty slogans about the benefits of mutual exchange, were in the lead.
By the 1980s and 1990s, the U.S. had become a major beneficiary of globalization. NAFTA, the free trade zone adopted in 1994 with Mexico and Canada, nearly zeroed out duties.
But it wasn't to everyone's taste.
Workers in the Rust Belt (Detroit, Pittsburgh) saw first Mexican and then Chinese goods gradually squeeze American industry.
Certainly the U.S. economy was not poor.
Industry may have begun to leave, but the service sector grew unprecedentedly; retailing flourished, Walmart replaced Ford .
The interests of the new elites, from high-tech to the service economy, demanded globalization; the old industrial ones seemed resigned to their defeat, like the British agrarians in the 1850s.
But at the heart of the state's real strength is not barbershops, coffee shops, call centers, or even Walmart .
The gradual withdrawal of industry to Asia led at some point to China becoming incredibly stronger; the Western bloc, by contrast, weakened.
This created the Thucydides Trap and the preconditions for a new world war.
So far, China is being extremely cautious, touching the murky waters of world politics from afar, through its vassal allies - North Korea, Iran, etc.
They riot in border regions; the West responds with sanctions; China watches closely.
Iran's economy, though hurt by sanctions, is doing quite well;
and even the N.Korea has grown a pretty solid military industry, without much of a drop in living standards .
American elites, looking at the strengthening of this new “axis”, probably decided to change their previous policies.
Will this decision be the right one?
Or will it only accelerate the change of leadership and their loss of global hegemony?
Who knows.
--
To summarize the review as follows: historically, the imposition of high duties can help to develop industry strictly under certain conditions.
1) The country has a sufficient domestic market to consume the industrial goods. Roughly speaking, if you have an island with 10,000 people, you can impose duties on cars at a million percent. All you'll achieve is smuggling; no automobile industry will emerge, the market is too small
2) There must be resources and production chains. If there are several million people living on that island, but no metallurgy, then cars can only be made from wood and vines, powered by crocodiles.
3) There must be educated professionals, and mass education that encourages technical literacy, curiosity, and inventive skills is essential for their emergence. It was this advantage that allowed the U.S. to industrialize in the 19th century incomparably better than Brazil or Mexico did.
4) There must be working laws and low corruption. If after the introduction of high duties quickly begins “well, in general, you can not, but the right people here and there will make an exception,” then it does not work.
5) Predictability. The industrialist must be sure that investments will pay off and the duties will not be canceled in a year or two. This is possible under the following political systems: either a working democracy (where the elites are mindful of national interests) or a reasonable enlightened autocracy. The other options won't work.
6) Finally, foreign policy considerations. If you have all the previous factors, but in response to a sharp increase in duties British battleships will come to you and popularly explain that you are wrong - it is better to sit quietly. Or enlist some good allies.
7) Last but not least.
Yes, protectionism may allow certain industries to emerge and grow; but duties are just diapers.
If a child is left in them for too long, it will never grow up and will remain a curled up invalid for the rest of its life.
When introducing duties, one should remember that at some point they should be gradually abolished; the ability to choose this moment, overcoming narrow sectoral interests, is a separate and difficult art.
It was the failure to consider the above factors that led to the many failed attempts at protectionist industrialization in the Third World; from Nasser's Egypt to socialist Cuba.
The lack of a domestic market, good specialists, technologies, production chains turned out to be the Achilles' heel of all grandiose programs for the development of own industry.
Even in places where protectionism (Brazil) was able to develop a number of domestic industries, it could turn out that it was good to drive your own cars, but under free trade conditions a number of other industries could be developed; and who knows, maybe they would bring more wealth and talent to the country?
After all, is producing everything of one's own some sort of end in itself? Maybe an open economy would allow us to find the areas where a country could be most successful?
Skeptics, of course, will point out that the greatest success in the production of rum or cigars is a small fortune.
This argument can go on for a long time, and both sides will make new and new arguments, citing Mises or his opponents.
Didn't the opening of the market to foreign goods in the former Soviet Union in the early 1990s lead to a massive devastation of the population and a decline in living standards?
Yes, the opponent will argue, but didn't new, more competitive sectors of the economy grow up quite quickly on the opened market, which allowed to raise the standard of living on a different, more reliable basis?
In my opinion, it is impossible to say unequivocally who is right: sometimes one, sometimes the other.
In the 1780s, Britain - for the first time in world history - saw the start of the Industrial Revolution.
New technologies, from looms and steam engines to puddling, changed everything. Machines made it radically cheaper to produce cloth.
Steam made it possible to mine coal and spin the wheels of the looms, and puddling gave quality iron.
Britain began a meteoric rise to power, becoming a power the likes of which the world had never known before.
At this very time, the other side of the Channel decided to open its doors to British goods (Anglo-French Treaty of 1786).
The markets were immediately filled with the industrial products of their neighbors.
Craftsmen began to go bankrupt, and factory workers tried to catch up with the British by buying machines and adopting new technologies.
But instead of an industrial revolution, another one began - 1789.
Crowds of angry workers, afraid that the machines would displace them, smashed factories. France delayed its industrial breakthrough and fell behind its neighbor for a long time.
Britain, which thanks to Cort obtained the technology of puddling and began to produce iron, gained a certain independence.
Previously it had been dependent on Sweden and Russia for iron; with charcoal needed for smelting, there was no other choice; the forests of the Urals and Kiruna burned to send new ships loaded with pig iron from St. Petersburg and Stockholm to London.
The British paid for this iron, thus supporting the economic development of their suppliers; new factories sprouted up in the Urals, the Russian army received more and more cannons and the Russian treasury more and more gold; all this allowed the empire to strengthen and subjugate its neighbors, winning victories over the Ottomans.
Now new technology made it possible to utilize the coal with which Britain was rich - and freed it from that dependence.
Russia didn't like it.
First Paul I and then Alexander I (under Napoleon's pressure in 1806, entering the Continental Blockade) broke off trade with Britain.
The result was the loss of a crucial partner at a key moment when it was the only one from which technological and trade advantages could be gained.
Metallurgy, which had been making brisk progress in the 18th century, was dealt a severe blow by being left without a major export market.
New technologies (pudeling) came late - in the 1820s and 1830s - and developed slowly and reluctantly; the domestic market alone was not enough to stimulate development.
In these two examples we see the deleterious effects of:
(a) trade liberalization (in France);
b) and protectionism (in Russia).
There is no universal prescription; sometimes one thing is harmful, sometimes another.
Let's take a look at the United States.
After the War of Independence, the US was an agrarian country with the rudiments of industry.
This did not bother the South.
The British cotton mills, around which new cities of a hundred thousand (Manchester in the first place) were rapidly springing up, consumed more, more and more raw materials; their appetite was insatiable.
And the slave economy of the South until 1861 perfectly satisfied that appetite; plantations grew and grew, exports to England steadily increased, Southern elites basked in luxury.
But there was one nuance.
Southerners naturally wanted to buy something with the money they received from the sale of cotton.
And the cheapest and best-quality manufactured goods were, of course, in England - a scale effect.
But in the North, where cotton and tobacco did not grow, they looked upon this with great disapproval; and at the first opportunity they began to impose duties on British goods.
The logic was clear; the northerners could not enjoy this feast of life (produce cotton, sell to the British, buy from them everything else, from carriages to rifles) anyway; and they wanted to sell their manufactured goods.
So arguments like “we can't afford to be an appendage of raw materials” came into play.
Ultimately, this was one of the causes of the Civil War; the industrial North naturally defeated the agrarian South, and then, fending off British competition with protectionist barriers, began to develop its own industry.
By the early 1900s, the task was complete; the United States had become the world's most powerful industrial power, surpassing the British Empire.
In Britain itself, free-traders and protectionists fought among themselves until mid-century.
Behind the protectionists were the “old” elites-the rich and powerful landowners who had no interest in having agricultural products imported into the country duty-free. .
Behind the freetraders were the “new” elites who had risen on industry and trade, owners of factories, newspapers and steamships; it was in their interests to trade duty-free with as many countries as possible, since their products were oriented to the rest of the world.
.And if the Russians or Germans flood England with cheap grain, so where is the sorrow?
It's a good thing; the workers will be able to buy more bread with their wages, and their standard of living and contentment will rise.
Will the farmers go bankrupt?
All the better for the factories; more laborers.
In the end, the free-traders win.
.
Adam Smith, one of the most prescient figures of the Enlightenment, was the first to formulate the basis of this ideology; his follower, Ricardo, developed the theory of “comparative advantage.”
It appeared that it was better for each country to produce what it was best at; why grow coffee in Sweden or smelt iron in Ethiopia, where ore and coal were scarce? Let the Ethiopians sell coffee to the Swedes and buy iron from them; each does what he is best at, and all are well.
Isn't that so?
At the same time, as if by itself, it turned out that England in these conditions is best to produce all industrial goods; after all, she is the earliest to start, she has the maximum concentration of specialists and technology.
And the rest can sell her, for example, grain, timber, other raw materials ....
But on the continent, these ideas were not particularly appreciated.
Particularly inspired by the ideas of Friedrich List, the German states that formed a customs union preferred to develop their own industry, even if it was a little worse and more expensive; but it was better to have their own rifles and cannons, not relying on the mercy of neighbors.
The Industrial Revolution spread across Europe in waves, starting from its center in England: Belgium, France, Prussia, Austria.
By the 1860s and 1870s it reached Russia, where the abolition of serfdom in 1861 strengthened the domestic market.
Protectionism ruled in the United States after the Civil War.
Railroads stretched across the continent, industrial cities sprouted - Detroit, Chicago - American corporations began to look at their neighbors, starting with Latin America, where American goods were already successfully competing with British goods; an effect of scale.
World War I, which had crippled the economies of colonial empires, was a gift of fate for American industry, steadily pulling away from all competitors.
America still clung to high duties in the first decades of the twentieth century.
Industrialists did not object to protectionism - why let in other people's goods, who needs unnecessary competitors?
The 1930 Smoot-Hawley Act, designed to protect domestic production during the Great Depression, was the apogee of this policy.
Age of Freetrade, however, is behind us;
Britain-which in the nineteenth century had been interested in it, and had even opened the door to its goods by force where it would not let them in amicably (the Opium Wars)-had lost its status as a leading industrial power by the 1930s.
Accordingly, it had little desire to see american competitors in its markets.
So, the colonial empires responded to American protectionism with their own duties.
World trade collapsed, unemployment increased massively, and in Japan the liberals were replaced by nationalists who believed that in the new conditions it was necessary to create their own domestic market at the expense of colonial conquests.
The beginning was Manchuria in 1931.
Later the same forces won in Germany; autarky became an integral feature of fascism.
In parallel, the super-protectionist USSR industrialized at a record pace.
In 1934, Roosevelt decided to launch a protectionist policy by passing the Reciprocal Trade Agreements Act.
It was based on the idea of mutual reduction of duties.
Free-trade was left behind, but customs barriers began to be gradually reduced.
As a result of the Second World War - extremely fortunate for the USA - there was a de facto dissolution of the world's main colonial empire, Britain; the markets of the former colonies opened up, American goods flowed there by the river. A golden age began in the United States.
By 1947, the U.S. had launched the GATT, the precursor to the WTO.
It was based on a simple idea: lower barriers between “our own”.
America, previously a bastion of protectionism, suddenly became a bastion of free trade.
True, there were a number of important caveats.
Although duties were reduced, the interests of farmers and steelworkers were shielded, helped by subsidies and quotas.
In the final analysis, the interests of the American economy, for all the pretty slogans about the benefits of mutual exchange, were in the lead.
By the 1980s and 1990s, the U.S. had become a major beneficiary of globalization. NAFTA, the free trade zone adopted in 1994 with Mexico and Canada, nearly zeroed out duties.
But it wasn't to everyone's taste.
Workers in the Rust Belt (Detroit, Pittsburgh) saw first Mexican and then Chinese goods gradually squeeze American industry.
Certainly the U.S. economy was not poor.
Industry may have begun to leave, but the service sector grew unprecedentedly; retailing flourished, Walmart replaced Ford .
The interests of the new elites, from high-tech to the service economy, demanded globalization; the old industrial ones seemed resigned to their defeat, like the British agrarians in the 1850s.
But at the heart of the state's real strength is not barbershops, coffee shops, call centers, or even Walmart .
The gradual withdrawal of industry to Asia led at some point to China becoming incredibly stronger; the Western bloc, by contrast, weakened.
This created the Thucydides Trap and the preconditions for a new world war.
So far, China is being extremely cautious, touching the murky waters of world politics from afar, through its vassal allies - North Korea, Iran, etc.
They riot in border regions; the West responds with sanctions; China watches closely.
Iran's economy, though hurt by sanctions, is doing quite well;
and even the N.Korea has grown a pretty solid military industry, without much of a drop in living standards .
American elites, looking at the strengthening of this new “axis”, probably decided to change their previous policies.
Will this decision be the right one?
Or will it only accelerate the change of leadership and their loss of global hegemony?
Who knows.
--
To summarize the review as follows: historically, the imposition of high duties can help to develop industry strictly under certain conditions.
1) The country has a sufficient domestic market to consume the industrial goods. Roughly speaking, if you have an island with 10,000 people, you can impose duties on cars at a million percent. All you'll achieve is smuggling; no automobile industry will emerge, the market is too small
2) There must be resources and production chains. If there are several million people living on that island, but no metallurgy, then cars can only be made from wood and vines, powered by crocodiles.
3) There must be educated professionals, and mass education that encourages technical literacy, curiosity, and inventive skills is essential for their emergence. It was this advantage that allowed the U.S. to industrialize in the 19th century incomparably better than Brazil or Mexico did.
4) There must be working laws and low corruption. If after the introduction of high duties quickly begins “well, in general, you can not, but the right people here and there will make an exception,” then it does not work.
5) Predictability. The industrialist must be sure that investments will pay off and the duties will not be canceled in a year or two. This is possible under the following political systems: either a working democracy (where the elites are mindful of national interests) or a reasonable enlightened autocracy. The other options won't work.
6) Finally, foreign policy considerations. If you have all the previous factors, but in response to a sharp increase in duties British battleships will come to you and popularly explain that you are wrong - it is better to sit quietly. Or enlist some good allies.
7) Last but not least.
Yes, protectionism may allow certain industries to emerge and grow; but duties are just diapers.
If a child is left in them for too long, it will never grow up and will remain a curled up invalid for the rest of its life.
When introducing duties, one should remember that at some point they should be gradually abolished; the ability to choose this moment, overcoming narrow sectoral interests, is a separate and difficult art.
It was the failure to consider the above factors that led to the many failed attempts at protectionist industrialization in the Third World; from Nasser's Egypt to socialist Cuba.
The lack of a domestic market, good specialists, technologies, production chains turned out to be the Achilles' heel of all grandiose programs for the development of own industry.
Even in places where protectionism (Brazil) was able to develop a number of domestic industries, it could turn out that it was good to drive your own cars, but under free trade conditions a number of other industries could be developed; and who knows, maybe they would bring more wealth and talent to the country?
After all, is producing everything of one's own some sort of end in itself? Maybe an open economy would allow us to find the areas where a country could be most successful?
Skeptics, of course, will point out that the greatest success in the production of rum or cigars is a small fortune.
This argument can go on for a long time, and both sides will make new and new arguments, citing Mises or his opponents.
Didn't the opening of the market to foreign goods in the former Soviet Union in the early 1990s lead to a massive devastation of the population and a decline in living standards?
Yes, the opponent will argue, but didn't new, more competitive sectors of the economy grow up quite quickly on the opened market, which allowed to raise the standard of living on a different, more reliable basis?
In my opinion, it is impossible to say unequivocally who is right: sometimes one, sometimes the other.
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