Prior to this, the British government’s policies were in general aimed at capturing trade (most importantly through colonialization and the Navigation Acts, which required that trade with Britain had to be conducted in British ships[28]) and at generating government revenue. The promotion of wool manufacturing, as discussed above, was the most important exception to this, but even this was partly motivated by the desire to generate more government revenue. In contrast, the policies introduced after 1721 were deliberately aimed at promoting manufacturing industries. Introducing the new law, Walpole stated, through the king’s address to Parliament: ‘it is evident that nothing so much contributes to promote the public well-being as the exportation of manufactured goods and the importation of foreign raw material’.[29]
The 1721 legislation, and its subsequent supplementary policy changes, included the following measures.[30] First of all, import duties on raw materials used for manufactures were lowered, or even dropped altogether.[31] Second, duty drawbacks on imported raw materials for exported manufactures – a policy that had been well established in the country since the days of William and Mary – were increased.[32] For example, the duty on beaver skins was reduced and in case of export a drawback of half the duty paid was allowed.[33] Third, export duties on most manufactures were abolished.[34] Fourth, duties on imported foreign manufactured goods were significantly raised. Fifth, export subsidies (‘bounties’) were extended to new items like silk products (1722) and gunpowder (1731), while the existing export subsidies to sailcloth and refined sugar were increased (in 1731 and 1733 respectively).[35] Sixth, regulation was introduced to control the quality of manufactured products, especially textile products, so that unscrupulous manufacturers could not damage the reputation of British products in foreign markets.[36]
Brisco sums up the principle behind this new legislation as follows: ‘[manufacturers] had to be protected at home from competition with foreign finished products; free exportation of finished articles had to be secured; and where possible, encouragement had to be given by bounty and allowance’.[37] What is very interesting to note here is that the policies introduced by the 1721 reform, as well as the principles behind them, were uncannily similar to those used by countries like Japan, Korea and Taiwan during the postwar period, as we shall see below (section 2.2.7).
With the Industrial Revolution in the second half of the eighteenth century, Britain started widening its technological lead over other countries. However, even then it continued its policy of industrial promotion until the mid-nineteenth century, by which time its technological supremacy was overwhelming.[38]
The first and most important component of this was clearly tariff protection. As we saw from table 2.1, Britain had very high tariffs on manufacturing products as late as the 1820s, some two generations after the start of its Industrial Revolution, and when it was significantly ahead of its competitor nations in technological terms. Measures other than tariff protection were also deployed.
First of all, Britain banned the imports of superior products from some of its colonies if they happened to threaten British industries. In 1699, the Wool Act prohibited exports of woollen products from the colonies, killing off the then superior Irish wool industry (see section 2.3). In 1700, a ban was imposed on the imports of superior Indian cotton products (‘calicoes’), debilitating what was then arguably the world’s most efficient cotton manufacturing sector. The Indian cotton industry was subsequently destroyed by the ending of the East India Company’s monopoly in international trade in 1813, when Britain had become a more efficient producer than India (see section 2.3). By 1873, two generations after the event, it was already estimated that 40-45% of all British cotton textile exports went to India.[39]
By the end of the Napoleonic Wars in 1815, however, there were increasing pressures for free trade in Britain from the increasingly confident manufacturers. By this time, most British manufacturers were firmly established as the most efficient in the world in most industries, except in a few limited areas where countries like Belgium and Switzerland possessed technological leads over Britain (see section 2.2.6). Although a new Corn Law passed in 1815 (Britain had had numerous Corn Laws dating back to 1463) meant an increase in agricultural protection, the pressure for freer trade was building Up.[40]
Although there was a round of tariff reduction in 1833, the big change came in 1846, when the Corn Law was repealed and tariffs on many manufacturing goods abolished.[41] The repeal of the Corn Law is these days commonly regarded as the ultimate victory of the Classical Liberal economic doctrine over wrong-headed mercantilism. Although we should not underestimate the role of economic theory in this policy shift, many historians more familiar with the period point out that it should probably be understood as an act of ‘free trade imperialism‘[42] intended to ‘halt the move to industrialisation on the Continent by enlarging the market for agricultural produce and primary materials’.[43]
Indeed, many key leaders of the campaign to repeal the Corn Law, such as the politician Robert Cobden and John Bowring of the Board of Trade, saw their campaign in precisely such terms.[44] Cobden’s view on this is clearly revealed in the following passage:
The factory system would, in all probability, not have taken place in America and Germany. It most certainly could not have flourished, as it has done, both in these states, and in France, Belgium, and Switzerland, through the fostering bounties which the high-priced food of the British artisan has offered to the cheaper fed manufacturer of those countries’.[45]
Symbolic though the repeal of Corn Law may have been, the real shift to free trade only happened in the 1850s. It was only after Gladstone’s budgets of the 1850s, and especially that of 1860, in conjunction with the Anglo-French free trade treaty (the so-called Cobden-Chevalier Treaty) signed that year, that most tariffs were eliminated. The following passage succinctly describes the magnitude of trade liberalization that happened in Britain during the 1850s. ‘In 1848, Britain had 1,146 dutiable articles; by 1860 she had forty-eight, all but twelve being revenue duties on luxuries or semi-luxuries. Once the most complex in Europe, the British tariff could now be printed “on half a page of Whitaker’s Almanack” ‘.[46]
It is important to note here that Britain’s technological lead that enabled this shift to a free trade regime had been achieved ‘behind high and long-lasting tariff barriers’ .[47] It is also important to note that the overall liberalization of the British economy that occurred during the mid-nineteenth century, of which trade liberalization was just a part, was a highly controlled affair overseen by the state, and not achieved through a laissez-faire approach.[48] It should also be pointed out that Britain ‘adopted Free Trade painfully slowly: eighty-four years from The Wealth of Nations to Gladstone’s 1860 budget; thirty-one from Waterloo to the ritual victory of 1846’.[49]
29
As cited in List 1885, p. 40. In List’s view, this ‘for centuries had been the ruling maxim of English commercial policy, as formerly it had been that of the commercial policy of the Venetian Republic’ (ibid., p.40).
30
For details see Brisco 1907, pp. 131-3, 148-55, 169-71; McCusker 1996, p. 358; Davis 1966, pp. 313-14; Wilson 1984, p. 267.
31
Interestingly, in the case of the drugs for dyeing, import duties were abolished in order to help the dyeing industries, while export duty was introduced ‘in order that their exportation might not assist foreign manufacturers’ (Brisco 1907, p. 139).
32
Brisco points out that the first duty drawback was granted under William and Mary to the exportation of beer, ale, mum, cider and perry (1907, p. 153). This is a policy that has been made famous by its successful use in the East Asian countries after the Second World War (see section 2.2.7 below).
34
Up to the late seventeenth century, most exports, like most imports, were taxed at 5 per cent. William III raised import taxes to 15-25 per cent, but kept the export tax at 5 per cent for most products (Davis, 1966, pp. 310-11). The exceptions to the subsequent abolition of export duties under Walpole included alum, lead, lead ore, tin, tanned leather, coals, white woollen cloths, skins, and hairs (for further details see Brisco 1907, p. 131, n. 1).
35
Brisco points out that export subsidies under Walpole were not granted to infant industries, but to industries that had already been established (1907, p. 152).
36
In Brisco’s words, ‘Walpole understood that, in order successfully to sell in a strongly competitive market, a high standard of goods was necessary. The manufacturer, being too eager to undersell his rival, would lower the quality of his wares which, in the end, would reflect on other English-made goods. There was only one way to secure goods of a high standard, and that was to regulate their manufacture by governmental supervision’ (1907, p. 185). Once again, we find the modern version of such policy in countries like Japan and Korea during the postwar period, whose state trading agencies not only acted as information sources and marketing channels but also as a monitor of export product quality.
38
Davis 1966 argues that the period between 1763 and 1776 saw a particular proliferation of protectionist measures, which he believes was influential in shaping Adam Smith’s view on mercantilism in his
39
The British export of cotton textile products to the East Indies, most of which went to India, increased from 6 per cent of total cotton textile exports after the Napoleonic Wars (c. 1815) increased to 22 per cent in 1840 and anything up to 60 per cent after 1873. (see Hobsbawm 1999, p. 125).
40
Of course, in most cases, the manufacturers’ support for free trade was a self-centred one, rather than out of their intellectual conversion to lofty principle of free trade – while supporting the repeal of the Corn Law, the cotton manufacturers remained opposed to free export of cotton machinery right until the end of the ban (first imposed in 1774) in 1842 (Musson 1978, p. 101; see section 2.3.3.).
43
Kindleberger 1978, p. 196. See Semmel 1970 for a classic study of the role of economic theory in the development of British trade policy between 1750 and 1850.
44
Kindleberger 1975; Reinert 1998. In 1840, Bowring advised the member states of German
45
48
See Polanyi 1957 [1944], chapters 12-13. Polanyi argues that ‘there was nothing natural about