Infant Industry Argument
The infant industry argument is an economic theory that advocates a protectionist industrial policy in order to strengthen non-competitive economic sectors (so-called infant industries ). The gist of the argument is that emerging industries often do not have the economies of scale their older competitors from other countries might have and therefore need to be protected until they can achieve similar economies of scale.
The theory applies in particular to the situation in developing countries and is one of the last rational arguments in economic theory for a protectionist trade policy. Even if a country could achieve a competitive advantage through high volumes and lower costs, it cannot take advantage of this as long as other countries have more competitive prices through economies of scale alone . As a consequence, a country should identify infant industries and set up trade barriers specifically for such products in order to protect domestic companies from foreign competition. Protective tariffs, quotas or similar instruments give them a monopoly-like position in the home market for a certain period of time and can thus achieve economies of scale that would not have been possible in free trade. However, as soon as the sectors have become internationally competitive, the trade barriers should be removed.
The argument was first fully articulated by the first United States Secretary of the Treasury, Alexander Hamilton , in his 1790 report on the Manufactories. Hamilton stated that developing an industrial base in a country without protectionism is impossible because import tariffs are necessary to protect local "young industries" until they can achieve economies of scale. The argument was systematically developed by the American political economist Daniel Raymond and later taken up by the economist Friedrich List in his work The National System of Political Economy , published in 1841 .
Many countries have successfully industrialized behind customs barriers, including the United States and Great Britain . For example, tariffs in the United States were among the highest in the world from 1816 to 1945. South Korea and Taiwan are recent examples of rapid industrialization and economic development with extensive government subsidies, exchange controls and high tariffs to protect selected industries.
Ernesto Zedillo , in his 2000 report to the UN Secretary-General, recommended "the legitimation of limited protection for certain industries by countries in the early stages of industrialization" and argued that "however misguided the old model of blanket protection may be, it would be a mistake to go to the other extreme and deny developing countries the opportunity to actively promote the development of an industrial sector " .
Start-up companies in the technology sector in particular require the use of European software solutions for central IT solutions ( learning platforms , video conferences, etc.).
Individual evidence
- ↑ The "Infant Industry" argument in the new foreign trade theory , accessed on May 19, 2020 in Core.ac.uk, pages 83-87
- ↑ When and how should infant industries be protected? Retrieved May 19, 2020 from Scholar.harvard.edu, page 179
- ^ Friedrich List: The National System of Political Economy . Theclassics.Us, 2013, ISBN 1-230-21300-7 .
- ↑ Christian Felber: Ethical World Trade: Alternatives to TTIP, WTO & Co . 2nd Edition. Deuticke Verlag, Vienna 2017, ISBN 3-552-06338-2 , chap. 19 .
- ↑ Gerold Ambrosius: Modern economic history: An introduction for historians and economists . 2nd Edition. Oldenbourg Wissenschaftsverlag, Munich 2006, ISBN 3-486-57878-2 , p. 351 .
- ^ Zedillo, Ernesto (2000.) Report of the High-Level Panel on Financing for Development . , accessed on June 17, 2020
- ↑ Technology start-ups: Politicians don't care about domestic solutions , from May 13, 2020 in Kurier.at