When they reached the technological frontier, the NDCs used a range of policies in order to help themselves pull away from their existing and potential competitors. Britain, given the duration for which it held the position of ‘frontier economy’, is most visible in this respect, but other countries also used similar measures when they could. Britain used measures to control transfer of technology to its potential competitors (for example, controls on skilled worker migration or machinery export), and put pressure on the less developed countries to open up their markets, by force if necessary. However, the catch-up economies that were not formal or informal colonies did not simply sit down and accept these restrictive measures. They employed a wide variety of measures to overcome the obstacles created by these restrictions, even resorting to ‘illegal’ means, such as the poaching of workers and smuggling of machinery.[11]
2.2. The Catch-up Strategies
In this section, I examine the experiences of a range of NDCs – Britain, the USA, Germany, France, Sweden, Belgium, the Netherlands, Switzerland, Japan, Korea and Taiwan – and consider what kinds of industrial, trade and technology (ITT) policies they used when they themselves were developing countries. I show that in most of these countries, the policies that were used are almost the opposite of what the present orthodoxy says they employed ‘and currently recommends that the currently developing countries should also use’.
2.2.1. Britain
As the intellectual fountain of the modern laissez-faire doctrines, and as the only country that can claim to have practised a total free trade at one stage in its history, Britain is widely regarded as having developed without significant state intervention. However, this could not be further from the truth.
Britain entered its post-feudal age (thirteenth and fourteenth centuries) as a relatively backward economy. Before 1600, it was an importer of technology from the Continent.[12] It relied on exports of raw wool and, to a lesser extent, of low-value-added wool cloth (what was then known as ‘short cloth’) to the then more advanced Low Countries, especially the towns of Bruges, Ghent and Ypres in Flanders, now part of Belgium.[13] The British monarchs of this time taxed these products mainly for revenue reasons, but since cloth was taxed more lightly than raw wool, this encouraged import substitution in wool cloth and a certain amount of export success.[14] Edward III (1327-77) is believed to have been the first king who deliberately tried to develop local wool cloth manufacturing. He wore only English cloth to set an example to the rest of the country,[15] brought in Flemish weavers, centralized trade in raw wool and banned the import of woollen cloth.[16]
The Tudor monarchs gave further impetus to the development of this industry with what can only be described as a deliberate infant industry promotion policy. The celebrated eighteenth-century merchant, politician and novelist, Daniel Defoe, describes this policy in his now-almost-forgotten book, A Plan of the English Commerce (1728).[17] In it, he describes in some detail how the Tudor monarchs, especially Henry VII (1485-1509) and Elizabeth I (1558-1603), transformed England from a country relying heavily on raw wool export to the Low Countries into the most formidable wool-manufacturing nation in the world.[18]
According to Defoe, Henry VII had, prior to his coronation in 1485, ‘been a kind of a Refugee in the Court of his Aunt the Dutchess of Burgundy [italics original],.[19] There, he was deeply impressed by the prosperity in the Low Countries based on wool manufacturing, and from 1489 onwards he put in place schemes to promote British wool manufacturing. The measures used included sending royal missions to identify locations suited to wool manufacturing,[20] poaching skilled workers from the Low Countries,[21] increasing duties on, and even temporarily banning the export of, raw wool. Ramsay also documents the legislation in 1489, 1512, 1513 and 1536, which banned the exports of unfinished cloths, save for coarse pieces below a certain market value. This, he observes, reflected the then ‘influential view that if it was preferable to export wool in the form of cloth rather than in the raw state then it was likewise better to ship cloth fully dressed and dyed than in a semi-manufactured state, “unbarbed and unshorn” ‘.[22]
As Defoe emphasizes, Henry VII realized that, given Britain’s technology gap with the Low Countries, this transformation was going to take a long time, and therefore he took a gradualist approach.[23] Therefore, he raised export duties on raw wool only when the industry was better established. As soon as it became clear that Britain simply did not have the capacity to process all the raw wool it produced, he withdrew the ban on raw wool export he had imposed.[24] According to Defoe, it was not until the time of Elizabeth I (1587), nearly a hundred years after Henry VII started his import substitution policy (1489), that Britain was confident enough about its wool manufacturing industry’s international competitiveness to ban raw wool export completely.[25] This eventually drove the manufacturers in the Low Countries to ruin.
According to Defoe’s analysis, other factors besides this import substitution policy helped the achievement of British victory in the wool industry under Elizabeth 1. Some of these factors were fortuitous, such as the migration of Protestant Flemish textile workers following the war of independence from Spain in 1567. However, other elements were deliberately created by the state. In order to open new markets, Elizabeth I dispatched trade envoys to the Pope and the Emperors of Russia, Mogul, and Persia. Britain’s massive investment in building its naval supremacy allowed it to break into new markets and often to colonise them and keep them as captive markets.[26]
It is difficult to establish the relative importance of the above-mentioned factors in explaining the British success in wool manufacturing. However, it does seem clear that, without what can only be described as the sixteenth-century equivalent of modern infant industry promotion strategy put in place by Henry VII and further pursued by his successors, it would have been very difficult, if not necessarily impossible, for Britain to achieve this initial success in industrialization: without this key industry, which accounted for at least half of Britain’s export revenue during the eighteenth century, its Industrial Revolution might have been very difficult, to say the least.[27]
The 1721 reform of the mercantile law introduced by Robert Walpole, the first British Prime Minister, during the reign of George I (1714-27) signified a dramatic shift in the focus of British industrial and trade policies.
11
I put the word ‘illegal’ in quotation marks, since the ‘legality’ in this case was in terms of British laws, whose legitimacy may not be (and in practice certainly was not) accepted by other countries.
15
This is reminiscent of the policies used by Japan and Korea during the postwar period to control ‘luxury consumption’, especially concerning imported luxury goods. On this, see Chang 1997.
17
I must thank Erik Reinert for drawing my attention to this book both through his work (e.g., Reinert 1996) and personally.
19
Defoe 1728, p. 94. However, Defoe got his facts wrong here. Prior to his coronation in 1485, Henry VII spent his exile years in Brittany and France, not in Burgundy (Gunn 1995, p. 9). Given that Burgundy had a long association with the Yorkists (Elton 1997, pp. 5-6), it would in any case have been impossible for the young Henry, a Lancastrian fleeing the Yorkist regime, to seek exile in Burgundy. Of course, this factual mistake by Defoe does not change the basic point that the focus of the British catch-up effort under Henry VII was the Low Countries, including Burgundy. I thank Tom Penn for raising this important point.
20
According to Defoe, Henry VII ‘set the Manufacture of Wool on Foot in several Parts of his Country, as particularly as
21
According to Defoe, Henry VII ‘secretly procured a great many Foreigners, who were perfectly skill’d in the Manufacture, to come over and instruct his own People here in their Beginnings’ (Defoe 1728, p. 96).
23
Henry VII realised ‘that the
24
Henry VII ‘did not immediately prohibit the exporting the Wool to the Flemings, neither did he, till some Years after, load the Exportation of it with any more Duties than he had before’ (Defoe 1728, p. 96). As for the ban on raw wool export, Defoe says Henry VII was ‘so far … from being able to compleat his Design, that he could never come to a total Prohibition of exporting the Wool in this Reign (ibid., p. 96). Thus, although Henry VII ‘did once pretend to stop the Exportation of the Wool, he conniv’d at the Breach of his Order, and afterwards took off the Prohibition entirely’ (ibid., p. 97).
27
Cloth exports (mostly woollen) accounted for around 70 per cent of English exports in 1700 and was still over 50 per cent of total exports until the 1770s (Musson 1978, p. 85).