Is that true? I got the impression the US and UK mostly became major economic powers by being ahead on tech in their day and China mostly by undercutting everyone on price through low wages and low environmental protection. OK China is protectionist but iPhones are made there because it costs less, not because of restrictions on importing phones to China. Dunno if you've got a source? I'll give you protectionism seems to have worked for S Korea though I'm not sure I'd call it a major economic power. Also what I'd think of as the most similar competitor in the area, Taiwan, has a higher gdp/captita without all the Chaebol protecting stuff.
It is very hard to generalize US economic history, but in general before the civil war the Southern states were in favor of free trade and the Northern states were protectionist. The North won. Like many countries that have developed recently, the US depended on lots of foreign investment for canals and then railroads.
I am not sure if the US had, on average, higher tariffs while it was developing than other countries. The US really became passionate politically about free trade after the great depression. Many economists felt that the depression was made much worse by protectionism that undermined world trade.
>Is that true? I got the impression the US and UK mostly became major economic powers by being ahead on tech in their day
The US did that after several centuries of economony building with huge protectionism and slavery. And remained there by using their army to ensure cheap resources, favorable contracts, lackeys in place in subservient countries, etc. The environment to create the "advanced tech" comes from that.
Similarly the UK and France become major economic powers by enslaving half the globe with their military. Their great "tech" and such come after the colonies, not before.
> Similarly the UK and France become major economic powers by enslaving half the globe with their military. Their great "tech" and such come after the colonies, not before.
It was technological advantages that enabled them to enslave half the globe with their military.
No, the European colonial powers had enormous technological advantages over the societies they subjugated. Just because both colonizer and colonized seem primitive to us doesn't mean that there wasn't an enormous gap between them.
The US became an economic power in large part because of slavery [1]. And I don't mean to say that in a snarky or condescending manner. The US is hardly the only country to give itself advantages. As you say, China's taking advantage of the environment. Protectionism is extremely active (subsidies and import tariffs). Wages are kept low.
Comfort and suffering seem to go hand in hand. Subsidized rice creates a surplus, which floods the market, which [seemingly paradoxically, but not really] results in famine in Haiti.
I don't think slavery really explains much. The Southern States' economy was dwarfed by the North. Did slavery benefit the US economy? Of course.
I would argue the US' protection from the ravages of WW1 and WW2 led to its economic power. Before WW1 the US wasn't a major player on the international stage.
Slavery is not actually very economically efficient. This is one of the main reasons the north had a much better developed economy. The problem is it’s limited to steady state production but you miss out on the increases in efficiency that drives compound economic growth.
EX: The first cotton gin was patented in 1793 which is 68 years before the American civil war. But, with cheap labor there is little pressure to improve it. http://en.wikipedia.org/wiki/Cotton_gin Sadly, it ended up increasing slavery in the south by making it more profitable, where a modern farm uses far less labor the south simply doubled down on cheap labor.
PS: There is actually a fair amount of evidence that Slavery significantly reduced US economic growth over time. Paid workers keep more of their output which is a non-issue from an overall economic standpoint, but they need far less supervision which is a large boon. There also more mobile and easier to fire and higher as needs change.
The recorded fact was that the new land was useless without the labor to support it. Herman Merivale spoke at length about the economic realities of slavery America: "No economical cause can be assigned on which we may rely for the extinction of slavery."
So ya, maybe by the mid-1800, additional forces were established. But the only reason that was a possibility was because, from the 1500s onward, people wanted to (and did) exploited the fertile soil. It's like taking a snapshot of 1979 and saying Michael Corleone was a legitimate business man.
Also, there was other crappy stuff going on beyond slavery (but slavery-like). The building of the transcontinental railroad. Taxes on non-US citizens (with restrictions on what races could become US-citizens).
There where a small number of people that profited greatly from slavery. However, economic growth is more than just what happens to rich people. As much hoopla as surrounded slavery in the US they always maintained a small portion of the total population and per capita generated less goods and services than the average american.
I can believe you on the slavery thing but that's not really protectionism. Without being moralistic about anything I'm still skeptical that protectionism, as in restricting imports, works particularly well for a country as a whole.
Well, let's do the standard mathematical thing and take the extreme case. Imagine that some country sucks so much that all its industries are less efficient than those in other countries. Since capital is free to move between countries nowadays, Ricardian comparative advantage doesn't apply, and the end result is that no one ever invests in the country's industries, so it just stays poor forever. You might try to use government investment to prop up domestic industries, but the government doesn't have too much money because the country is poor to begin with.
It seems like protectionism would help in this case, by creating a market that can only be satisfied by domestic industries. And since there's a spectrum from this case to more realistic cases, there's also a spectrum of usefulness for protectionism. Does that make sense?
> Since capital is free to move between countries nowadays, Ricardian comparative advantage doesn't apply
Ricardian comparative advantage always applies when ignoring transaction costs; reducing transaction costs for any given set of transactions (e.g., by eliminating formal restrictions on capital movement) increases (rather than reduces) the likelihood that Ricardian comparative advantage applies.
(If you want an extreme case in which Ricardian comparative advantage to fails to apply, you need to assume extreme transaction costs -- one of the canonical hypothetical examples where this is argued to the case is an interstellar civilization without FTL travel.)
I don't see how that's true. Let's run through the standard example from Wikipedia.
1) England can produce a unit of cloth for 100 units of labor, and a unit of wine for 120 units of labor. Portugal can produce a unit of cloth for 90 units of labor, and a unit of wine for 80 units of labor. Portugal has absolute advantage in both goods, but England has a comparative advantage in cloth. By the standard Ricardian argument, we get lots of trade and happiness.
2) Now let's change the situation slightly. Replace all occurrences of "units of labor" with "units of capital", and assume that capital can move freely between countries. We've lost the key component of comparative advantage, the idea that producing a good forces you to "forgo" producing some other good. Everyone just produces everything in Portugal, and England dies. Whoops!
3) Now allow England to set up protectionism, so that all wine consumed in England must be locally produced. This way it can survive. Not very nicely, but between (2) and (3) I'd choose (3) every time.
You are missing that for capital in England to move to Portugal, something has to move the other way.
If you look at actual neoliberal trade, a lot of production of goods (and even services, to the extent that they can be provided remotely) moves to the peripheries, but the core's comparative advantage becomes in renting out surplus capital (which produces even more surplus capital to rent out). That is, the developed world in actual neoliberal trade with free capital movement are the countries that are like England in your example.
> You are missing that for capital in England to move to Portugal, something has to move the other way.
Why? Because nature abhors a vacuum? :-)
As far as I can tell, production doesn't really move to the poorest countries like the one in my example. It seems that it moves to countries that have an absolute (not just comparative) advantage in manufacturing costs.
Well, because "England" and "Portugal", on the level that Ricardian comparative advantage really works, aren't really countries, but sets of people (and, really, the comparative advantage really exists on the individual level, its existence between sets of people is simply an aggregate of its individual existence.)
Absent an external actor using force to compel an involuntary transfer, productive capital moving from person E to person P requires some item(s) of value moving to E such that the value to E justifies surrendering the capital.
I suppose the real thorny bit is what happens after that. You've used protectionism to raise a number of national industries that have incubated in a shielded market. At some point, they need to be exposed to the world.
I'd imagine, if they provide something unique, they can succeed. However, if it's (for example) a commodity industry, they're unlikely to have faced the same pressure to become efficient that their new competitors have.
Although, on the flip side, that timeline sounds excellent for growing a monopoly-busting competitor. (E.g. what my understanding is that the French do from time-to-time)
Ricardian comparative advantage always applies’s simply because domestic land/workers are going to be doing something. The economy might end up being based around running internet scam's or gold farming in MMO’s, but compared to substance farming that's still a step up.
Protectionism works like this. People in business worried that they're not making enough dough convinces fellow citizens that the way for the nation to prosper is by wasting additional money to produce those goods and services on one side of a line instead of on another. These local businessmen makes extra cash, tout their high-visibility success. Individuals and families who pay for this and spend less on other things (harming every other sector of the economy) are conveniently ignored.
