The infant-industry theory posits that new and emerging industries in developing countries require protection from international competition until they become mature and competitive. Proponents argue that shielding these nascent industries allows them to develop the skills, economies of scale, and technology needed to compete effectively in the global market.
Key Arguments for Infant-Industry Protection
Market Failures and Learning Curve
One of the main arguments for protecting infant industries is the presence of market failures and the learning curve. Proponents assert that new industries may initially struggle to compete due to a lack of experience, inefficiencies, and underdeveloped technology. By providing temporary protection—through tariffs, subsidies, or import restrictions—governments can help these industries reach a level where they can achieve lower production costs and higher productivity.
Economies of Scale
Another argument hinges on economies of scale. Many industries require a significant scale of production to lower costs per unit. Without protection, infant industries might never achieve the size needed to realize these efficiencies and thus fail to develop.
Diversification of the Economy
Protecting infant industries helps in diversifying an economy that might be overly dependent on a few primary sectors. Diversification reduces economic vulnerability and promotes stability.
Historical Context of Infant-Industry Protection
Early Applications
The theory dates back to the 18th and 19th centuries, with notable proponents like Alexander Hamilton in the United States and Friedrich List in Germany advocating for protective measures to nurture domestic industries.
Post-War Development Strategies
In the post-World War II era, many newly independent countries adopted infant-industry protection as part of their industrialization strategies. Various Latin American, African, and Asian countries implemented import substitution industrialization (ISI) policies to foster domestic production and reduce dependency on foreign goods.
Examples of Infant-Industry Protection
United States
During the early 19th century, the U.S. imposed tariffs to protect its budding industrial sector, leading to the development of a competitive manufacturing base.
South Korea
South Korea is often cited as a successful example, where the state protected and nurtured technology-intensive industries like electronics and automobiles, eventually becoming global leaders.
Criticisms and Challenges
Misallocation of Resources
Critics argue that protectionist policies might lead to the misallocation of resources, where industries that would otherwise not be competitive receive undue support, leading to inefficiencies in the economy.
Risk of Perpetual Protection
There is also the risk that industries become dependent on protection and fail to mature, lobbying for continuous support and distorting the market in the long term.
FAQs
What are the main tools used for infant-industry protection?
Is infant-industry protection still relevant today?
Related Terms
- Tariff: A tax or duty to be paid on a particular class of imports or exports.:**
- Industrial Policy: Government measures aimed at improving the competitiveness and capabilities of domestic industries.:**
- Import Substitution Industrialization (ISI): An economic policy that advocates replacing foreign imports with domestic production.:**
References
- Hamilton, Alexander. “Report on Manufactures,” December 5, 1791.
- List, Friedrich. The National System of Political Economy. 1841.
Summary
The infant-industry theory advocates for temporary protection of new industries in developing countries to foster their growth and competitive ability. While historical and contemporary examples show mixed results, the theory remains a significant and debated aspect of economic policy.
