The treaty was allowed to lapse in 1892 and many tariff rates, especially the ones on manufacturing, were subsequently raised. However, this had few positive effects of the kind experienced by countries like Sweden during the same period (see section 2.2.5 below), because there was no coherent industrial upgrading strategy behind this tariff increase. If anything, the new tariff regime was actually opposed to such a scheme – the author of the tariff regime, the politician Jules Meline, was explicitly against large-scale industrialization, because of his belief that France should remain a country of independent farmers and small workshops.[135]
The French government was almost as laissez-faire in its attitude towards economic matters as the then very laissez-faire British government, especially during the Third Republic. Given its political instability and divisions, France was basically run by the permanent bureaucracy, which was itself dominated by the very conservative and technocratic Ministry of Finance. The government budget was made up largely of expenditure in general administration, law and order, education, and transport – the classic areas of involvement of the ‘minimal state’. The regulatory role of the state also remained minimal.[136]
The Ministry of Commerce and Industry, the potential centre of industrial policy, was not created in its modern form until 1886; even then it controlled the smallest budget of any ministry. It concentrated largely on promoting exports and setting tariffs, and its industrial promotion activities ‘other than a rare subsidy, consisted largely of organising exhibitions, looking after the Chambers of Commerce, gathering economic statistics, and distributing decorations to businessmen’.[137] Even in these limited areas it was not very effective. Moreover, tariffs during this period were largely protective of existing industrial structures (especially agriculture) and were not of the proactive kind that was aimed at industrial upgrading.[138]
It was only after the Second World War that the French elite was galvanized into reorganizing their state machinery in order to address the problem of the country’s relative industrial backwardness. During this time, especially until the late 1960s, the French state used indicative planning, state-owned enterprises and what is these days – somewhat misleadingly – termed ‘East-Asian-style’ industrial policy in order to catch up with the more advanced countries. As a result, France witnessed a very successful structural transformation of its economy, and finally overtook Britain in terms of both output and (in most areas) technology.[139]
2.2.5. Sweden
Sweden, despite its reputation as the ‘small open economy’ during the post-war period, did not enter its modern age with a free trade regime. After the end of the Napoleonic wars, its government enacted a strongly protective tariff law (1816), banning the import and export of some items. As a result of the high tariffs, an outright ban on imported finished cotton goods, and the deliberately low tariffs on raw cotton, cotton cloth production was greatly increased.[140] Once again, it is interesting to note the similarity between this tariff regime and that used by Britain in the eighteenth century (see section 2.2.1), as well as those used by countries like Korea and Taiwan in the postwar period (see section 2.2.7).
However, from about 1830 onward, protection was progressively lowered.[141] A very low tariff regime was maintained until the end of the nineteenth century, especially after the 1857 abolition of tariffs on foodstuffs, raw materials, and machines.[142] As table 2.1 shows, around 1875 Sweden had one of the lowest tariff rates of any of the major economies listed.
This free-trade phase, however, was short-lived. From around 1880 Sweden started using tariffs as a means of protecting the agricultural sector from the newly-emerging American competition. After 1892 (until when it had been bound by many commercial treaties) it also provided tariff protection and subsidies to the industrial sector, especially the newly-emerging engineering sector.[143] As we can see from table 2.1, by 1913 its average tariff rate on manufactured products was among the highest in Europe. Indeed, according to one study conducted in the 1930s, Sweden ranked second after Russia among the 14 European countries studied, in terms of its degree of manufacturing protection.[144]
As a result of this switch to protectionism, the Swedish economy performed extremely well in the following decades. According to one calculation Sweden was, after Finland, the second fastest-growing (in terms of GDP per work-hour) of the 16 major industrial economies between 1890 and 1900, and the fastest-growing between 1900 and 1913.[145]
The tariff protection of the late nineteenth century was particularly successful because it was combined with industrial subsidies as well as supports for R&D aimed at encouraging the adoption of new technologies. Economic historians generally agree that the promotional efforts of that time provided an important impetus to the development of certain infant industries, although one negative side effect was to create the proliferation of relatively inefficient small firms.[146]
Tariff protection and subsidies were not the only tools that Sweden used to promote industrial development. More interestingly, during the late nineteenth century, Sweden developed a tradition of close public-private cooperation to an extent that is unparalleled in other countries during this period, including even Germany with its long tradition of public-private partnership (see section 2.2.3).
This cooperative relationship first developed out of state involvement in the agricultural irrigation and drainage schemes. This same pattern was then applied to the development of railways from the 1850s. In contravention of the then dominant model of private-sector-led development of railways (notably in Britain), the government built the trunk lines (completed by 1870) and allowed the private sector to construct branch lines. The construction and operation of the branch lines were subject to government approval and, after 1882, price control. In 1913, the state-owned railway company accounted for 33 per cent of the railway mileage and 60 per cent of goods transported.[147]
Similar methods of public-private cooperation were applied to the development of other infrastructures – telegraph and telephone in the 1880s and hydroelectric energy in the 1890s. It is also often argued that this long-term technical cooperation with state-owned enterprises in the infrastructural industries was instrumental in making companies like Ericsson (telephones) and ASEA (now part of the Swedish-Swiss firm ABB, which manufactures railway equipment and electrical engineering) into world-class firms.[148]
Public-private collaboration also existed outside the infrastructural sector. In 1747, a semi-autonomous Iron Office was created. Its directors were elected by the Association of Iron masters (the employers’ association), and it maintained a price cartel, disbursed subsidized loans, provided technological and geological information, gave out travel stipends for the sourcing of technology, and promoted metallurgical research. The industry was liberalized in the mid-nineteenth century, starting with the liberalization of trade in pig iron within the country (1835) and achieving the removal of most restrictions by 1858. Even after this, however, the employers’ association continued to collaborate with the government in fostering better technical standards and higher skills. It is interesting that all of these initiatives resemble the patterns of public-private collaboration for which the East Asian economies later became famous.[149]
139
For the postwar French experience, see, among others, Shonfield 1965; Cohen, 1977; Hall 1986. It is probably as a result of this bitter experience of being overtaken by its century-long rival that many British commentators (whether pro-French or otherwise) highlight the contrast between their own
144
Liepman 1938, as cited by Bairoch 1993, p. 26, table 2.3. The original source is H Liepmann,
145
Baumol et al. 1990, p. 88, table 5.1. The 16 countries, in alphabetical order are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, the Netherlands, Norway, Sweden, Switzerland, the UK, and the USA.
148
Chang and Kozul-Wright 1994, pp. 869-70; Bohlin 1999, pp. 153-5. However, in the telephone industry there erupted a ‘telephone war’ in the Stockholm area between 1903 and 1918 between the state-owned company,
149
Gustavson 1986, pp. 71-2; Chang and Kozul-Wright 1994, p. 870. For public-private collaboration in the East Asian economies, see the classic work by Evans (1995).