Bairoch points out that, throughout the nineteenth century and up to the 1920s, the USA was the fastest growing economy in the world, despite being the most protectionist during almost all of this period.[88] There is also no evidence that the only significant reduction of protectionism in the US economy, between 1846 and 1861, had any noticeable positive impact on the country’s development. Most interestingly, the two best 20-year GDP per capita growth performances during the 1830-1910 period were 1870-1890 (2.1 per cent) and 1890-1910 (two per cent) – both periods of particularly high protectionism.[89] It is hard to believe that this association between the degree of protectionism and overall growth is purely coincidental. Indeed, O’Rourke shows some statistical evidence from ten NDCs, including the USA, during the ‘liberal golden age’ of 1875-1914, to the effect that protection (measured by average tariff rates) was positively related to growth.[90]
Of course, as many people point out, tariff protection for some industries certainly outlived its usefulness. For example, despite the continuing debate on this issue.[91] it is widely agreed that by the 1830s, American cotton textile producers would not have needed protection, particularly in certain low-value-added segments of the market.[92] It is also very likely that even some of the necessary tariffs may have been set at excessively high levels due to interest-group pressures and the complicated horse-trading that has characterised the country’s policy making. Despite these qualifications it seems difficult to deny that, without infant industry protection, the US economy would not have industrialized and developed as fast as it did in its catching-up period.
Important as it may have been, tariff protection was not the only policy deployed by the US government in order to promote the country’s economic development during its catch-up phase. From the Morrill Act of 1862, and probably from as early as the 1830s, the government supported an extensive range of agricultural research. Measures used included the granting of government land to agricultural colleges and the establishment of government research institutes, such as the Bureau of Animal Industry and the Bureau of Agricultural Chemistry. In the second half of the nineteenth century, it expanded public educational investments – in 1840, less than half of the total investment in education was public, whereas by 1900 this figure had risen to almost 80 per cent – and raised the literacy ratio to 94 per cent by 1900. The role of the US government in promoting the development of transportation infrastructure, especially through the granting of land and subsidies to railway companies, was also critical in shaping the country’s developmental path.[93]
. It is important to recognize that the role of the US federal government in industrial development has been substantial even in the postwar era, thanks to the large amount of defence-related procurements and R&D spending, which have had enormous spillover effects.[94] The share of the US federal government in total R&D spending, which was only 16 per cent in 1930,[95] remained between one-half and two-thirds during the postwar years.[96] Industries such as computers, aerospace and the internet, where the USA still maintains an international edge despite the decline in its overall technological leadership, would not have existed without defence-related R&D funding by the country’s federal government.[97] The critical role of the US government’s National Institutes of Health (NIH) in supporting R&D in pharmaceutical and biotechnology industries, thus maintaining the US lead in these industries, should also be mentioned. Even according to the information provided by the US pharmaceutical industry association, only 43 per cent of pharmaceutical R&D is funded by the industry itself, while 29 per cent is funded by the NIH.[98]
During the nineteenth century, the USA was not only the strongest bastion of protectionist policies, but was also their intellectual home. At that time it was widely believed among US intellectuals that ‘the new country required a new economics, one grounded in different political institutions and economic conditions than those prevailing in the Old World’.[99] Some of them went so far as to argue that even internationally competitive US industries should have tariff protection because of the possibility of predatory dumping by large European enterprises, who, after decimating the American firms, would revert to monopolistic pricing.[100]
Well into the last quarter of the nineteenth century, most of the more original US economists of the period seem to have been strong advocates of infant industry protection. The well-known supporters of infant industry promotion, Daniel Raymond (who influenced Friedrich List) and Mathew Carey were the two leading economists of the early nineteenth century, while American economics during the mid-to late nineteenth century was dominated by Carey’s son Henry. Henry Carey was described as ‘the only American economist of importance’ by Marx and Engels in the early 1850s[101] and was one of Lincoln’s (somewhat frustrated) economic advisors.[102] Unfortunately, most of these economists have now been airbrushed out of the history of US economic thought, but it was they, rather than the American Classical economists (then regarded as second-rate by the British standard), who were the more prominent intellectual figures of the time.
What is especially interesting to note here is that many US intellectuals and politicians during the country’s catch-up period clearly understood that the free trade theory advocated by the British Classical Economists was unsuited to their country. Reinert reports that, due to this concern, Thomas Jefferson tried (in vain) to prevent the publication of Ricardo’s Principles in the USA.[103] Reinert also cites from List’s work the comment by a US Congressman, a contemporary of List, who observed that English trade theory ‘like most English manufactured goods, is intended for export, not for consumption at home’ .[104]
As I mentioned earlier, Henry Clay, the most prominent protectionist politician of the early nineteenth century and Abraham Lincoln’s early mentor, named his economic policy platform the ‘American System’, in explicit opposition to what he called the ‘British System’ of free trade. Somewhat later, Henry Carey even argued that free trade was part of British imperialist system that consigned the USA to a role of primary product exporter.[105] It is also reported that during the 1860 election campaign, in which Carey played a key intellectual role, the Republicans in some protectionist states referred disparagingly to the Democrats as a ‘Southern-British-Antitariff-Disunion party [italics added]’.[106]
89
Bairoch 1993, pp.52-3. According to Bairoch, the third fastest-growing 20-year period was that of 1850-70 (1.8 per cent). However, the record for this period is more difficult to assess than those of the other two periods. First of all, 1850-61 was a period of relatively (but relatively) low protectionism, while 1862-70 witnessed a marked increase in protection. Moreover, this period contains the periods of the Civil War (1861-5) and the postwar reconstruction, and thus cannot be treated in the same way as other periods.
90
See O’Rourke 2000. The 10 countries are: Austria, Canada, Denmark, France, Germany, Italy, Norway, Sweden, the UK and the USA.
91
The role of tariffs in the development of cotton textile has generated a heated debate. Taussig was the first to argue that ‘[p]robably as early as 1824, and almost certainly by 1832, the industry had reached a firm position, in which it was able to meet foreign competition on equal terms’ (1892, p. 136). Bils disputed this and concluded his study with the statement that ‘[t]he removal of tariff … would have reduced value added in textiles by, at a minimum, three quarters. The implication is that about half of the industrial sector of New England would have been bankrupted’ (1984, p. 1,045). Irwin and Temin 2000 sided with Taussig on the ground that the American cotton textile producers would have survived the abolition of tariff because they specialised in different products from those of the British producers. However, the difference between them and Bils is actually not as striking as it first seems. Irwin and Temin do not disagree with Bils’s view that the American producers could not compete with the British producers in high-value-added segments of the market. They merely make the point that most American producers were not actually in those segments.
92
Engerman and Sokoloff 2000, p. 400; Lipsey 2000, p. 726. This is presumably why on the eve of the Civil War the New England woollen textile industry was in general quite content with the moderate protection accorded by the 1857 Tariff Act, inasmuch as the tariff on raw materials remained low. In contrast, states like Pennsylvania, New Jersey, parts of Maryland, and West Virginia (with its mining interests), where the new generation of heavy industries were growing around the iron-coal axis, were very strongly protectionist (see Luthin 1944, pp. 615-20).
97
Shapiro and Taylor sum this up nicely: ‘Boeing would not be Boeing, nor would IBM be IBM, in either military or commercial endeavours without Pentagon contracts and civilian research support’ (1990, p. 866).
100
Conkin 1980, p. 188. The best example of such extreme protectionist was Willard Philips, who, together with Calvin Colton, was one of the most famous campaigners for infant industry protection in the early nineteenth century. Philips published one of the two or three earliest American economics textbooks, A Manual of Political Economy (Conkin 1980, p. 178).
102
Letter to Weydemeyer, 5 March 1852, in K Marx and F Engels, Letters to Americans, 1848-95: A Selection {New York, International Publishers, 1953, cited in Fraysse 1994, p. 224, n. 46.
104
Reinert 1998, p. 296. The original source is F List, Gesammelte Werke, vol. V, p. 338.