The Pamphlet Collection of Sir Robert Stout: Volume 51
5. Protection promotes native industry by providing fresh channels for the employment of native labour
5. Protection promotes native industry by providing fresh channels for the employment of native labour.
It would be well if this were all, but truth requires the addition of the following words: "It at the same time destroys more of the old channels for the employment of native labour than it provides new." Such is the fact, and in its suppression lies the fallacy. Ceasing to import foreign goods means ceasing to export those native goods which were sent in exchange for the former, and throwing the producers of such native goods out of work. A country that adopts the Protective system ceases to import, and produces for itself, certain articles which we may call X Y Z, and thus capital and labour acquire "fresh channels for employment." So far, so good; but this good inseparably brings with it an evil that far more than counterbalances it. When the nation in question imported the articles X Y Z, it exported in exchange for them other articles of native manufacture which we may call A B C. But when it ceased importing the former, it necessarily (for imports and exports are, as we have seen, correlative) ceased exporting the latter. What is the consequence? The articles A B C are no longer produced, and the capital and labour which produced them remain idle. The capital can afford to wait; but what of the labour-sellers who are thrown out of work? Instead of "native industry" being "promoted," it is "the old channels for employment" that are "destroyed."
Eventually, the displacement is partially remedied by the absorption of the disorganised capital and labour into the new industry. But is the change which has been effected through this displacement a benefit? Certainly not. Quite the contrary. The advantages which the division of labour confers have been set aside. The capital and labour which were employed in the production of articles A B C, with which the foreign producer could not compete, are now diverted to the production of articles X Y Z which cannot page 18 compete (else, why protective duties?) with the production of foreigners. In other words, men are taken away from what they can do better than others, and set to work on what others can do better than they can. The capital and labour which used to be employed remuneratively are now producing a loss which has to be made up by a public subvention in the shape of an import tax.
If, instead of taking the instance of a nation that is adopting the Protective system, we take that of a protected nation that is adopting Free Trade, we arrive at analogous results. Such nation, by abolishing the import duties on certain articles X Y Z, imports them from abroad, where they are cheaper, and discontinues their production at home. Thus capital and labour lose some of their old channels of employment. But let us look at the other side. Now that this same country imports, instead of making, the articles X Y Z, it necessarily exports in exchange for them (for every increase of imports necessitates an increase of exports) other articles of native production, which we may call A B C, and thus fresh channels of employment are created. The capital, fixed and floating, and the labour, which have become disused by ceasing to produce the articles X Y Z, are utilised in producing the articles A B C, for which an export demand is created by the importation of the articles X Y Z. And now let us inquire—Is the change which has been effected through this displacement a benefit? Yes! and a very decided one. The same capital and labour that was before unprofitably employed in producing the protected articles X Y Z, which the foreigner could produce cheaper or better, are now profitably employed in producing the articles A B C, which suit the foreigner's market, and which he readily takes in exchange for his own. Hence the capital and labour which used to be devoted to losing are now devoted to remunerative industries, the consumers enjoy the benefit of cheap goods instead of dear ones, the division of labour is effectually carried out, and a great impulse is given to foreign trade. In this way the producer gains, the consumer gains, the national wealth is increased, and the general commerce of the country is extended.
The fresh industries which Protection creates are created page 19 at the expense of the staple old industries which Protection curtails. The former can only exist by taxing the entire community; the latter were self-supporting. A country cannot at the same time cease importing foreign articles, and go on exporting the native articles which used to be sent in exchange for them. Free Trade says, "Go on exporting the cheap native article and importing the cheap foreign one." Protection says, "Leave off producing the native article which you produce so cheaply, and turn to producing the foreign article which you can only produce at a high price, and the law will compel the consumers to pay you that extra price by laying a heavy import duty on the cheap foreign article." Were the principle of opening new losing industries at the expense of old profitable ones fairly carried out, England might create a fresh industry by producing her own wines, and thus being independent of France; France, by producing her own cotton, and thus being independent of America; Germany, by producing her own silk, and thus being independent of China, &c, &c. The absurdity of such a policy is palpable, but the absurdity is equally positive, though not so palpable, in every case wherein nations discourage the industries for which they are best adapted in order to create others for which they are less fitted.
Protection, therefore, does not promote native industry, but simply displaces it from a good to a bad position. We have dwelt at some length on this topic because the fallacy of the Protectionist proposition is not immediately obvious, and many honest inquirers have been temporarily misled by it. The key to its solution is in the fact that just in the proportion that a country curtails its imports, in that same proportion it curtails its exports. To sum up, the truth is that Protection Discourages Native Industry, by Closing Profitable Channels for its Exercise and Substituting for them Unprofitable Ones.