The Pamphlet Collection of Sir Robert Stout: Volume 51
Chapter VII. — Protection Applied to Young States
Protection Applied to Young States.
There are two classes of states which, while admitting the theoretical truth of the free-trade system, claim exemption from its operation for contradictory reasons—young states because they are young, old states because they are old. The former say that were they old they would not dream of maintaining protection, but being young their case is exceptional. The latter say that, were they young they would not dream of hampering themselves with protection, which they now find so onerous, but being sold their case is exceptional.
Let us first take the case of the young states. Their plea assumes the following shape. They are supposed to say, "As a theory, free trade is, we admit, unassailable, but, exceptionally, and for a time, it does not apply to young nations or colonies, for they would never learn to manufacture anything for themselves unless their early efforts were 'protected' from the sweeping rivalry of older and more expert producers. Give the native manufacturer a fair start by artificially fostering his infant labours, and when he has made some progress, and reached a certain amount of proficiency, we will then strip him of protection, let him breathe the bracing air of open competition, and adopt free trade without reservation." This doctrine will not, however, stand the test of close examination. On the contrary, it can, we think, be shown that it is precisely to young countries, or page 25 newly-founded colonies, that the application of the protective principle is the most pernicious and indefensible.
These young communities are generally situated in the midst of an inexhaustible area of fertile land which only waits the application of human industry to be converted into mines of wealth. There is a strong demand for labour, which accordingly receives a high rate of remuneration. But so favourable are the natural conditions, that high wages are perfectly compatible with the cheap production of articles which foreign countries readily take in any quantity, giving in exchange such other articles as the young country could not produce except at a much greater cost. Its commerce is thus carried on under the most favourable possible conditions, and the working power of the young nation is all directed into the most profitable channels. It is now proposed to alter this prosperous state of things. Some of the articles hitherto obtained from abroad in exchange for the staple commodities of the young country are, at any cost, to be raised or manufactured at home, and the export of the staple commodities lessened in proportion. The capital and labour which are now working with admirable results are to be abstracted from the production of commodities so cheap and good that foreign countries willingly buy them, and to be devoted to the production of commodities so dear and bad, that in order to compel the native consumers to buy them, the importation of the same articles from abroad has to be prevented by prohibitory duties. And who is it that is benefited by this policy? No one, not even the workman or capitalist whose labour and money are engaged in the new manufacture; they were fully and remuneratively employed before, and now that they are diverted into new channels, competition keeps wages and profits down to the average level, while to enable them to get even that, the entire community has to be taxed. Certainly not the rest of the nation, for they have to subsidise the new industry to keep it going.
It is much more to the purpose to inquire who it is that is injured by this policy. Everybody is. All the consumers of the "protected" fabric, who are mulcted in the difference page 26 between the low price at which they used to get a good article from the foreigner and the high price which they now have to pay for an inferior article to the native. All the producers and traders in the country, who suffer from the diminution that takes place in their foreign commerce in consequence of the reduced amount of the importations. And, finally, even the protected industries themselves; for, while the labour and capital employed in them obtain no more than the average remuneration, they are subject to one peculiar disadvantage: they exist on sufferance, and the system of protection by which they were brought into being, and under which alone they can live at all, is precarious, questionable, and liable to break down altogether at any moment that the nation may get tired of paying a yearly subscription for the purpose of artificially maintaining it. These industries, the nurselings of well-meaning but short-sighted patriots, are for the most part sickly, nerveless, and etiolated; and although reared into existence with the professed view that they shall someday stand the brunt of foreign competition, the day never arrives when they are equal to the struggle, and protection has either to be continued indefinitely, or its removal is their death-warrant.
As these fragile protected industries increase in number and importance they at last become formidable obstacles to the full adoption of free trade. As to encouraging their growth with the idea that at some future period they will willingly encounter, or be found able successfully to withstand, foreign competition, it is an error and a delusion of which most old countries furnish abundant illustrations. The time will come when those young countries which have acted in that vain hope, will bitterly repent having done so. They will find that they have made sacrifices to create interests, the vitality of which is entirely dependent on the national bounty, and which will have either to be left to their fate, or will remain a perpetual drain on the resources of the country. Far better not to have called them into exist-once than to let them grow until the alternative faces you of either immolating them, or of unwillingly adhering to a page 27 commercial policy which you know to be injurious, and which you only adopted temporarily.
The plausible cry under which this mischievous policy is usually inaugurated is, "Do not let us pay the foreigner for what we can produce ourselves !" The answer is obvious, "You do not pay the foreigner for his goods in the sense you mean it, that is, in money. Imports are paid for by exports, not in bullion." All commerce is barter. You simply exchange with the foreigner what you can produce better than he can, for what he can produce better than you can, and both parties are benefited. In prohibiting that exchange, you at the same time nullify both the sale of your own, and the purchase of the foreign commodity. In order yourselves to produce the foreign article, you have to produce so much less of the native article which you would otherwise have given in exchange for it; for the same capital and labour cannot produce both, and by stopping the import of the former you stop the export of the latter. The phrase, "Do not let us pay the foreigner for what we can produce ourselves," correctly interpreted, means "Do not let us exchange our productions for those of the foreigner," or, in other words, "Do not let us have foreign trade."