What the Napoleonic wars tell us about infant industry protection

One of the more interesting economics job market papers this year is from Réka Juhász at LSE. In brief, she shows that Britain’s naval blockade of France protected its infant cotton industry from British manufacturing giants, stimulating the French industry for good.

I find that in the short-run regions (départements) in the French Empire which became better protected from trade with the British for exogenous reasons during the Napoleonic Wars (1803-15) increased capacity in a new technology, mechanised cotton spinning, to a larger extent than regions which remained more exposed to trade.

Temporary protection had long term effects. …I first show that the location of cotton spinning within France was persistent, and firms located in regions with higher post-war spinning capacity were more productive 30 years later.

Second, I find that after the restoration of peace, exports of cotton goods from France increased substantially, consistent with evolving comparative advantage in cottons.

Third, I show that as late as 1850, France and Belgium – both part of the French Empire prior to 1815 – had larger cotton spinning industries than other Continental European countries which were not protected from British trade during the wars; this suggests that adoption of the new technology was far from inevitable.

Before you think, “Yes! More temporary protection for infant industries in developing countries!”, I’m reminded of something I was told in grad school (I wish I remember by whom).

Trade protection is like herpes. Once you’ve got it you can never get rid of it.

Juhász found the elusive temporary herpes.

P.S. Coincidentally, I happen to be partway into Sven Beckert’s Empire of Cotton. It is very, very good so far. An early candidate for a best book of the year and essential reading for development economists/political scientists.

P.P.S. If any of you know who said the herpes quote that I would appreciate having my memory corrected. I want to say Rudi Dornbusch, but that’s only because it sounds like the kind of thing he would say.

 

59 Responses

  2. As a small aside, Sven Beckert’s The Monied Metropolis (about the rise of the “American bourgiousie” after the Civi War – when the merchants and manufactures put aside their differences and combined their political power) is also an amazing book. I’m looking forward to reading Empire of Cotton.

  3. @Gerry I agree, there are certainly arguments for protection, but the infant industry argument specifically argues that the protection needed is temporary. And for political reasons it seldom is. That’s the main herpes analogy, though the original speaker might have meant the infection part too.

    Why political? Once you’ve given protections that privilege a small group of producers, they will have incentives to lobby hard to maintain those privileges, while the broad populace will not, even if they would benefit from cheaper goods (especially the poor). Dani Rodrik (not a neolibral) famously demonstrated this. Think sugar and corn protection in the US as an example.

    Who benefits? The owners of the companies most of all. Obviously workers in protected industries benefit, at least in the short and maybe medium run since they mustn’t switch sectors and jobs. But the workers in poorer countries who need those jobs lose. The consumers who would consume the cheaper goods lose.

    My view: Protection as a welfare-improving measure is an easier argument if you’re a nationalist and care more about workers at home than abroad. Unfortunately that’s probably the most important cultural reason for protection I can think of. Especially France.

    There are other arguments for protection (e.g. protection of minimum labor and environmental standards) but they would probably produce a very different form of protection than what we find ourselves with.

    The best policies get perverted by politics and so I approach protection with caution.

  4. “Trade protection is like herpes” is an incredibly pejorative way to look at it. It may be that countries continue trade protection over long periods for all sorts of good reasons – economic and cultural (think France). It’s only in a neo-liberal mindset that trade protection is akin to an unpleasant infection. Some evidence of long run issues with trade protection would be a justifiable critique but this isn’t – particularly at the end of a blog post about an article that shows that trade protection makes a lot of sense.