Saturday, March 01, 2008

The Real Goods on Industrial Policy

Via Avedon Carol's The Sideshow, a Buzzflash book review of Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism, by Ha-Joon Chang. This review of an excellent book which I'm going to get hold of a copy of is also an essay by someone who knows about the subject. Reviewer Thom Hartmann quotes Alexander Hamilton at one point where the author himself only summarizes,

As Hamilton noted (this is only referenced in the book - I'm filling in Hamilton's actual words here):

It is a primary object of the policy of nations, to be able to supply themselves with subsistence from their own soils; and manufacturing nations, as far as circumstances permit, endeavor to procure, from the same source, the raw materials necessary for their own fabrics.

As to how to accomplish that, Hamilton and Coxe had a straightforward plan, which was adopted by the Founders of this nation:
I. Protecting duties.

Protective duties, or duties on those foreign articles which are the rivals of the domestic ones, intended to be encouraged. [B]y enhancing the charges on foreign articles, they enable the national manufacturers to undersell all their foreign competitors.

II. Prohibitions of rival articles or duties equivalent to prohibitions.

Considering a monopoly of the domestic market to its own manufacturers as the reigning policy of manufacturing nations, a similar policy on the part of the United States in every proper instance, is dictated, it might almost be said, by the principles of distributive justice; certainly by the duty of endeavoring to secure to their own citizens a reciprocity of advantages.

III. Prohibitions of the exportation of the materials of manufactures.

The desire of securing a cheap and plentiful supply for the national workmen, and, where the article is either peculiar to the country, or of peculiar quality there, the jealousy of enabling foreign workmen to rival those of the nation, with its own materials, are the leading motives to this species of regulation. …

IV. Pecuniary bounties [industry direct financial subsidies].

This has been found one of the most efficacious means of encouraging manufactures, and it is in some views, the best. Though it has not yet been practiced upon by the government of the United States (unless the allowances on the exportation of dried and pickled fish and salted meat could be considered as a bounty) and though it is less favored by public opinion than some other modes. Its advantages, are these -- It is a species of encouragement more positive and direct than any other, and for that very reason, has a more immediate tendency to stimulate and uphold new enterprises, increasing the chances of profit, and diminishing the risks of loss, in the first attempts.

V. Premiums [incentives for production, innovation, or quality].

These are of a nature allied to bounties, though distinguishable from them, in some important features. Bounties are applicable to the whole quantity of an article produced, or manufactured, or exported, and involve a correspondent expense.

Premiums serve to reward some particular excellence or superiority, some extraordinary exertion or skill, and are dispensed only in a small number of cases. But their effect is to stimulate general effort. Contrived so as to be both honorary and lucrative, they address themselves to different passions; touching the chords as well of emulation as of interest. They are accordingly a very economical mean of exciting the enterprise of a whole community.

There's a whole lot more Hamiltonian goodness there, but I'm pretty sure President Washington's compatriot is out of copyright by now, and has passed beyond litigation in any event.

This is sort of like the essay I wrote a few days ago, except twenty times better. My work as a blogger is cut out for me.

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