Tuesday, July 12, 2016

Britain’s Protectionism against Indian Cotton Textiles

From the late 17th century, Indian cotton textile imports – such as white calicoes, muslins, printed and striped cotton goods – flowed into Europe in ever larger volumes.

Local manufacturers, seeing the lightness and superior nature of cotton, started to create new cotton textile industries.

But they faced a serious problem: they could not compete with the Indian imports in terms of price or even quality (Parthasarathi 2011: 89).

The centre of the world’s cotton textile production was in India in the 18th century; by the mid-19th century, it had shifted to Europe (Parthasarathi 2011: 89).

How did this happen?

Parthasarathi (2011) examines this question, and the answer he privides (which as we will see below is incomplete) is as follows:
(1) technical knowledge on how to dye and print on cotton was obtained from the Middle East and India by Europeans: that is to say, Europe imitated and borrowed the technical knowledge (Parthasarathi 2011: 90–93).

(2) however, despite the technical knowledge of (1), domestically-made cotton textiles in Europe still could not compete in price or quality with Indian goods, either at home or in export markets (Parthasarathi 2011: 89, 96).

(3) if we take the case of Britain, whose cotton textile industry became dominant by the mid-19th century, we find that Britain industrialised in this sector by imposing massive protectionism and tariff barriers to Indian cotton goods, a follows:
1685 – 10% import tariff on Indian goods;

1690 – tariff doubled to 20%;

1701 – First Calico Act, legislation banning imports of dyed, painted or printed fabric;

1707 – British textiles manufacturers obtained further tariffs on Indian textiles;

1721 – Second Calico Act, which further banned imports of Indian textiles.
Some of these early acts of protection were imposed to protect the woollen, silk and linen textile producers of Britain, but their consequence was also to protect the cotton manufacturers, who in the 18th century mainly concentrated on the production of a new hybrid fustian cloth, a mixture of cotton and linen (Parthasarathi 2011: 93).

(4) With a protected home market, British manufacturers were able to develop and apply the following technologies to production:
(1) Hargreaves’s spinning jenny (invented c. 1764; patented 1770), which was later made obsolete by 1800 by mules;

(2) Arkwright’s spinning frame, which was later developed into the water frame (patented 1769);

(3) Crompton’s mule (1779).
Hargreaves’s spinning jenny greatly increased the quality of cotton goods and lowered costs (Parthasarathi 2011: 98), but it was Arkwright’s water frame that allowed the production of higher-quality all-cotton cloth (Parthasarathi 2011: 98).

Crompton’s mule allowed the spinning of all-cotton muslins as fine as those of India (Parthasarathi 2011: 98).

The idea that shortages in yarn were the main driver of these innovations is not supported by the evidence (Parthasarathi 2011: 98) which rather shows that the desire to match the quality of Indian cloths was the major factor (Parthasarathi 2011: 109).

(5) However, despite the 18th century technological developments by Kay, Hargreaves, and Arkwright, British cotton textiles could still not compete in price with Indian goods. In the 1780s, there was vehement demand for protection by cotton manufacturers (Parthasarathi 2011: 112), which the government readily supported.
As far as I can see, all these points are true, but Parthasarathi seems to have missed further very important points about British protectionism.

As Parthasarathi notes, even with the invention and gradual use of Crompton’s mule in the 1780s, British textiles still could not compete with Indian calicoes (Alavi 1982: 56).

The British producers were protected with more tariffs, and by 1813 the import duty on Indian cotton goods stood at 85% (Alavi 1982: 56). As Alavi argues:
“It was the wall of protection that made possible the survival and growth of the British cotton textile industry in the face of Indian competition and facilitated large capital investments in the industry. Without it, the English industry would have found it impossible to get a foothold in the home market, let alone abroad.” (Alavi 1982: 56).
From 1797–1819 British cotton textile manufacturers were still unable to compete. In 1815, the value of all Indian cotton goods coming into England was 1.3 million pounds (from 1741–1750, it had stood at 1.2 million points annually, at a time when domestic cotton textile competition was still largely non-existent). British producers asked for and obtained tariff increases on Indian cottons on 7 separate occasions in the years from 1797–1819.

Even with the technological innovations, by the beginning of the 19th century, Indian silk and cotton goods
“… could be sold in the British market at a price between 50% and 60% lower than those fabricated in England. It consequently became necessary to protect the latter by duties of 70% to 80% on their value.” (Das 1946: 313, quoting Mukerjee 1967).
It was only the application of steam power in the period between 1815 to 1830 that allowed English textile goods to be competitive globally (Marks 2002: 100). The power loom, for instance, was initially limited by relying on water power, but by the beginning of the 19th century was able to use steam power (Moe 2007: 34).

The cost of British-made cotton cloth fell by 85%, but only from 1780 to 1850, and it was only in 1835 that steam power fuelled 75% of the British cotton industry (Moe 2007: 35).

British textile goods probably became internationally competitive by the mid-1820s (when tariffs were still in place). The British protectionism that lasted until the 1820s allowed British goods to become competitive.

It is estimated that by 1820, about 53% of Britain’s exports were cotton textile goods (Bairoch 1993: 85). These exports displaced India’s textile exports in world markets. Thus Britain itself had an “export-led” model of economic growth even in the early stages of the industrial revolution, by taking away the market share of India through technological innovation allowed by protectionism and tariffs.

Yet, according to classical free trade theory, India had the comparative advantage in production of cotton textiles even around 1810 when the British textile industry was developing. If real free trade had been implemented, the protective tariff would have been abolished and the market for British-made textiles at home would have collapsed.

Yet nobody can seriously deny that having a large productive textile industry was the foundation of Britain’s industrial revolution and in the long run good for the economy.

After the successful decades of tariff protection and shelter from competition, British goods succeeded in global markets at the expense of India’s exports. Bengal and the textile manufacturers were ruined and the resultant de-industrialization impoverished the previously prosperous towns.

Contemporary 19th-century British advocates of free trade actually noticed this state of affairs and criticised it. Robert Montgomery Martin (1801–1868) was a historian of Irish descent and wrote about twenty-six books on history and the British empire (including a History of the British Colonies). In 1844 he was Treasurer of Hong Kong. He appears to have been a free trader, though admittedly a member of the unconventional, proto-Keynesian “Birmingham School” of economists.

Robert Montgomery Martin was called upon to give evidence in 1840 during a British parliamentary inquiry about India:
“[Before a British Parliamentary Committee in 1840] Montgomery Martin stated that he . . . was convinced that an outrage had been committed ‘by reason of the outcry for free trade on the part of England without permitting India a free trade herself.’ After supplying statistical data of Indian textile exports to Great Britain, he pointed out that between 1815–1832 prohibitive duties ranging from 10 to 20, 30, 50, 100 and 1,000 per cent were levied on articles from India. ... ‘Had this not been the case,’ wrote Horace Wilson in his 1826 History of British India, ‘the mills of Paisley and Manchester would have been stopped in their outset, and could scarcely have been again set in motion, even by the power of steam. They were created by the sacrifice of Indian manufacture. Had India been independent, she could have retaliated, would have imposed prohibitive duties on British goods and thus have preserved her own productive industry from annihilation. This act of self-defence was not permitted her.’” (Clairmonte 1960: 86-87).
Thus some British apostles of free trade noticed this double standard. They were appalled at the hypocrisy of British protectionism and the destruction of India’s prosperous cities built on textile exports.

But they of course failed to notice that the protectionism had been a major cause of Britain’s industrial revolution and that, without it, the UK would have been much poorer. In other words, the success of the cotton textile industry in the early industrial revolution in Britain was an example of infant industry protectionism, or modern import substitution industrialization (ISI).

The great Ricardian lie spun by modern free-trading cultists that free trade was always good for Britain and that British industrialisation was the result of free trade by comparative advantage stands exposed by historical reality.

BIBLIOGRAPHY
Alavi, H. 1982. “India: The Transition to Colonial Capitalism,” in H. Alavi et al. (eds), Capitalism and Colonial Production, Croom Helm, London.

Bairoch, Paul. 1993. Economics and World History: Myths and Paradoxes. Harvester Wheatsheaf, New York and London.

Clairmonte, F. 1960. Economic Liberalism and Underdevelopment: Studies in the Disintegration of an Idea, Asia Publishing House, New York.

Das, T. 1946. Review of The Economic History of India: 1600–1800, American Historical Review 51.2 (January): 312–314.

Marks, R. 2002. The Origins of the Modern World: A Global and Ecological Narrative, Rowman & Littlefield, Lanham, MD.

Moe, E. 2007. Governance, Growth and Global Leadership: The Role of the State in Technological Progress, 1750–2000, Ashgate Publishing, Aldershot, UK.

Mukerjee, R. 1967. The Economic History of India: 1600–1800, Kitab Mahal, Allahabad.

Parthasarathi, Prasannan. 2011. Why Europe Grew Rich and Asia Did Not: Global Economic Divergence, 1600–1850. Cambridge University Press, Cambridge.

Wright, John. 1785. An Address to the Members of Both Houses of Parliament on the Late Tax laid on Fustian and Other Goods. W. Eyres, Warrington, UK.

30 comments:

  1. Of interest:

    https://www.youtube.com/watch?v=wrwuk6NoMv8

    Basically a social democrat. Not unlike Burke. Unsurprising.

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    1. Yes, I watched that months ago. I watch a lot of Peter Hitchens' stuff, because his political commentary is often acute and worth listening to, even when you disagree.

      However, for all his talk about being a social democrat and being pro-union on economics, he is clueless on many issues, e.g.,

      (1) he is a deficit hawk.

      (2) he thinks governments are like households, and government debt is essentially like private debt

      (3) he often cites Keynes, but never seems to understand real Keynesian economics, e.g., on the necessity for stimulus, nor does he have any coherent economic theory
      -------
      I wrote about this last year:

      http://socialdemocracy21stcentury.blogspot.com/2015/01/is-peter-hitchens-keynesian.html

      Hitchens even commented on that post, but was under the mistaken impression that Peter Lilley wrote it:

      http://hitchensblog.mailonsunday.co.uk/2015/01/a-challenge-from-peter-lilley.html

      He promised to respond to my post but never did, confirming to my mind he's not up to it.

      Delete
    2. Here is another interview where Hitchens describes his economic ideas:

      https://www.youtube.com/watch?v=4ATJ23ftuho&feature=youtu.be&t=1898

      But he has no economic theory for that social democratic vision.

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    3. Also note in that video I just posted: from 32.30 onwards Hitchens says what I just told you but you dispute: he says quite explicitly that his opinion is that the Old Labour party before about 1965 was a "socially conservative party". The cultural and social radicalisation really took hold after that date.

      Prepared to concede yet, Illusionist?

      Delete
    4. Also, he doesn't understand the damage done by the Postmodernist left, probably because this came after his time.

      He also has a bizarre idea that hard drug addiction doesn't exist as a physiological condition akin to disease.

      Delete
    5. Yes, he's wrong on the bankruptcy thing. Although you could make a case that the UK economy is now a basket case due to the irreversible deindustrialisation. Besides, I don't think Keynesian economics is germane to his main arguments.

      I have not seen him discuss the Old Left. But he hates the involvement of government in family life. Old Labour were the first to really push that in the 20th century. There were precursors in the Victorian era but they never held office. There is absolutely no way he could argue that those tendencies were anything but socially radical. They certainly led to the marriage reform in the 1960s -- initiated by Old Labour -- that he decries.

      Finally, having overcome at least one so-called 'physical addiction' (although not of the hard drug variety) I can assure you that they are not predominantly physiological. The physiological component only holds in withdrawal which can be managed. They are mainly diseases of the mind... which is why treatment programs treat them as such. The myth that they are predominantly 'diseases' like cancer or some such is promoted by a fringe group of academic materialists and is only used as rhetoric by those treating them in order to gain access to funding.

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    6. Even seems to think Keynesianism wouldn't work today:

      https://twitter.com/ClarkeMicah/status/752841992535740416

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    7. "I have not seen him discuss the Old Left. But he hates the involvement of government in family life. Old Labour were the first to really push that in the 20th century. There were precursors in the Victorian era but they never held office. There is absolutely no way he could argue that those tendencies were anything but socially radical."

      Exactly what "involvement of government in family life" are you talking about?

      State-provision of education?

      Basic welfare like pensions or accident insurance?

      As we already saw last time we discussed this, Old Labour kept abortion and homosexual acts illegal and upheld the death penalty as late as the time of Clement Attlee: this is extremely conservative by modern standards.

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    8. Also, regarding our previous debate on eugenics, you should look at this:

      Hart, Bradley W. and Richard Carr. 2015. “Sterilization and the British Conservative Party: Rethinking the Failure of the Eugenics Society’s Political Strategy in the Nineteen-Thirties,” Historical Research 88.242: 716–739.

      As this article shows, in the 1930s there was real and significant conservative/Tory support for eugenics legislation in Britain, and some of the strongest and vehement opposition - and indeed what defeated it -- came from the Labour party, socialists, Christian Catholic Labour voters.

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    9. I'm referring to the expansion of the welfare state and the removal of decentralised family authority through a shifting of marriage laws. Hitchens refers to this as the 'nationalisation of childhood'. It has been analysed most ably by Chris Lasch in the US...

      https://www.amazon.com/Haven-Heartless-World-Norton-Paperback/dp/0393313034

      ...and Michel Foucault and Jacques Donzelot in France...

      https://www.amazon.com/Policing-Families-Professor-Jacques-Donzelot/dp/0801856493/ref=sr_1_1?s=books&ie=UTF8&qid=1468330292&sr=1-1&keywords=jacques+donzelot

      Foucault and Donzelot miss the fact that the welfare state stuff was tied to the reforms of family law -- something they were actively involved in! -- but their analysis is very good.

      This is at the heart of Old Left cultural radicalism. It reached obscene proportions in the old Communist countries. But it is deeply embedded in the West. This is the real root of the moral relativism you see today. Traditional authority was undermined by the State itself. What you call 'postmodernism' is really only the ideology of this. The source is the laws passed by radical social reformers over the past century -- and, on occasion, even earlier. The 20th century social democrats led this charge.

      This is Peter Hitchens' big thing. I'm surprised that you haven't picked up on that.

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    10. so you are saying that social security pensions and public education is not socially conservative?

      i dont think so actually this things help people to sustain familiy its supporting the familiy not diminshing it.

      Delete
    11. Alright, Illusionist, regarding Christopher Lasch’s Haven in a Heartless World: The Family Besieged (Norton, New York and London, 1995), I’ve just read a number of reviews of it.

      It seems like a work of vulgar Marxism that blames the “bourgeois order” for the disintegration of family life, and borrows from the Frankfurt School cultural Freudian nonsense.

      The argument appears to be that the expansion of state schooling and social services eroded bonds between parents and children and combined with capitalism’s need to make men work all day long, undermined the patriarchal family.

      But then it falls down like a house of cards when we read the mechanism behind this: I read that Lasch blames capitalism for undermining the “authority of the father” by making fathers work away from home and reducing their time with children, so that the Oedipal nature (!!) of childhood development is thrown off course, and so children become pleasure-seeking hedonists free from all authorities (e.g., adherents of the 1960s New Left).

      So, under Freud’s crackpot theories, children remain at the “narcissistic stage” of development and so it all becomes in effect, if not by intention, a way to further evil capitalism’s need to maintain high levels of consumption.

      The theories are partly taken, apparently, from Marcuse’s “one-dimensional society” theory.

      The vast array of private and state institutions or professionals from social workers, therapists, teachers, and counsellors have destroyed family independence and transformed the family into a slave of consumer society by stopping proper “Oedipal” psychoanalytic development of the young.

      The book reviews I’ve read complain that hardly any good empirical evidence is offered in support of Lasch’s views. There is a gaping hole in his theory in that he seems to ignore girls. The Freudian claptrap along is enough to damn it.

      In other words, this book and its arguments are shot through with Freudian psychoanalytic balderdash and Frankfurt School cultural nonsense, and Marxist conspiracy theories. Freud’s notion of the Oedipal complex -- totally discredited by modern anthropology and psychology -- is the actual theoretical basis of the whole book.

      This is nonsense, Illusionist. Maybe the welfare state has had deleterious effects on the family and on the rise of single parent families, but this book seems to give no sensible theory about it.

      Finally, Lasch seems to me to be the perfect example of these New Left Marxists who, when confronted with the failure of Marxism and their movements, retreat into conspiracy theories to explain why it all went wrong. Lasch is similar in this respect to the Structuralist Marxists of France like Derrida and Foucault who retreated into the madness of French Poststructuralism, when they became disillusioned with Marxism.

      Delete
    12. Lasch's case can be made with or without the Freudian stuff. It's just a framing. Foucault/Donzelot use a different framing.

      YOu really need to stop getting bogged down in factional "intellectual" battles.

      "Oh boo! I hate your Freudian/Marxian/postmodern/evolutionary/behaviorist/whatever framework! There is no value in that work because that pseudoscientific/bourgeois/whatever framework was used."

      It's such juvenile undergraduate nonsense. You know what? There's actually solid work written by Marxists and by psychoanalytically influenced authors and by behaviorists and by many others... there's even some stuff of worth from the neoclassicals.

      This academic People's' Front of Judea stuff is asinine.

      Delete
  2. LK

    its really important data shows how much international trade is actually a zero sum game.

    thats why i want to ask why you are rarely spoke about and as far as i know never posted a blog about international clearing union and its relevance to our economy?

    1.as you know it will eliminate the zero sum elemant from international trade.

    2.it will help non industrial countries to develop good industrial plans.

    3.it will help developed countries to tame corporations and tax havens and will eliminate the race to the bottom in cases when the intention of the corporation is to outsource the jobs to import back the products to developed countries.

    so in this case where all the world would develop itself in wage led growth manner instead of only some of the countries which develop itself at expense of other countries with export led it will create an enviroment where all the countries would able to develop themself in full employment enviorment without all the zero sum elements of our modern economy.

    so in my opinion i think that its something that will be worthwile to mention in your blog LK.

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    1. (1) yes, I think people fall to realise how much of trade is, as you say, "actually a zero sum game."

      (2) regarding the international monetary reforms you're talking about, it seems broadly in line with Paul Davidson's views:

      http://www.i-r-e.org/fiche-analyse-183_en.html

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    2. also steve keen spoke about that its really interesting give it a look

      https://www.youtube.com/watch?v=FoLyd_Hq32Q

      Delete
  3. So so so so so so much of colonial history is of double standards in laws applied.

    I am generally one of the most pro-Western and cosmopolitan among Indian people. But then again, so were the people who fought for Indian independence. Gandhi and many others started the early part of their lives as pro British people, but were disillusioned by how Western values were never applied in the colonies.

    Promotion of free trade abroad and tarriffs at home. Lenient punishments at home and death penalties abroad. Trial by courts at home and imprisonment without trial abroad. Freedom of speech at home and censorship abroad.

    Honestly, I don't care - I don't care at all - about ancient history. But even these days, you seem some repeat of it, that certain countries push for policies abroad that they would not have at home. Look at the disastrous austerity imposed on southern Europe while Germany had an expansionary Keynesian fiscal policy at home.

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    1. Prateek

      thats why its so important to eliminate zero sum elements from international trade (in this case it will be mutually benefitcial for countries to take care about each other) and thats possible with the idea of keynes

      https://en.wikipedia.org/wiki/International_Clearing_Union

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    2. Well, at least the international system -- as European empires were given up -- from about 1945 to the 1970s gave the Third World a space for both political and, crucially, economic independence. It's also horrendous that this was abolished after the 1970s.

      But, yes, in the colonial era, as you say, there was outrageous hypocrisy.

      Still, I feel now it's important not to get swept up in regressive left hysteria.

      Serious moral question: was British imperialism in India as bad as Mongol imperialism? Or Mughal imperialism? This doesn't condone it, but puts it in historical perspective.

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    3. LK, I think it is possible to think that

      1) European imperialism had benefits
      2) Europeans are not the worst people to have walked the earth
      3) there was way too much outrageous hypocrisy in what colonial era Europeans did

      I am not condoning regressive left hysteria at all.

      The people who pushed for independence in Africa and India often believed in 1) and 2). In the early part of their lives, they downplayed 3). But as time went on, it was too difficult to ignore 3).

      Interestingly, one African president said a few years ago that he prefers that Chinese multinationals leave and that the British come back. http://www.economist.com/node/21531021

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    4. Yeah, regarding your last link, I keep telling people this: have a look at Chinese imperialism.

      There needs to be a strong, sensible West to counter this in the 21st century.

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    5. LK

      sadly the west dont understand if it will not work fast enough then sooner or later it will be too late for the west (like for india) and in this case all the free trade preachers high paid mainstream economists and the international cosmopolitian elite will say ups and will run away to the new prosperous superpowers (to continue their cosy life) while leaving the working middle class and even people like you and me in underdeveloped full of poverty countries with no chance of escaping it.

      thats the reason why english working class voted to leave.

      Delete
    6. "Serious moral question: was British imperialism in India as bad as Mongol imperialism?"

      I doubt there are any good records of mortality rates under Mongol or Mughal imperialism, however, simply adding the death tolls gets you about 50 million dead due to starvation and hunger related illness.

      https://en.wikipedia.org/wiki/Timeline_of_major_famines_in_India_during_British_rule

      However you do bring up and interesting question. When it comes to imperialism some nations are more benign than others. If we were to create a spectrum of most to least severe the Portuguese would probably be on the end most benign. The British and French would follow next somewhere in the middle. Then the Russians and the Ottomans. The Germans and the Japanese would be toward the end least friendly beaten only by the Belgians(Congo "Free" State).

      Maybe you could do a post on which empires in modern history(1500-present) were the worst to their own citizens as well as their colonial subjects.

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  4. I'm a huge fan of free trade. Clearly Britain already had a technological edge over India at the time, as it was able to conquer it. Had it waited a few more decades without protection, the same industrial revolution would likely have happened.

    I'd like to see a table of Indian textile imports and British textile exports over this period. It seems relevant.

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    1. So, wait, Pithom, the actual English cotton manufacturers of that time were screaming for protection because they would have been killed in the home market by a flood of cheap Indian imports, but *still** you think there would have been a viable, large cotton textile industry in the 1800s or 1810s without protection?

      None so blind as those who don't want to see!! Faith-based economics, hallelujah!

      Delete
    2. One of your “free trading” British cotton traders in 1785, Pithom:

      “The minister cannot be ignorant that an alleviation of duties on India muslins and callicos, or giving encouragement to them by laying a heavier tax upon the cotton goods of this country, especially upon the infant manufacture of muslins and fine callicos, must depress and discourage the industry and ingenuity of our manufacturers at home, and have the strongest tendency to promote the sale of such foreign fabrics, in preference to those of Britain; that such a preference must soon be attended with evident injury to the public interest, as well as to the private trader, is too conspicuous, to admit of the verbosity of ratiocination.”

      Wright, John. 1785. An Address to the Members of Both Houses of Parliament on the Late Tax laid on Fustian and Other Goods. W. Eyres, Warrington, UK. pp. 9–10.

      Delete
  5. "So, wait, Pithom, the actual English cotton manufacturers of that time were screaming for protection because they would have been killed in the home market by a flood of cheap Indian imports"

    -The cry of all inefficient manufacturers.

    If the price differential between British and Indian textiles resulted from a scarcity of silver in India, that would have been corrected in decades. If it resulted from better Indian production methods, they would have been copied by the British. If it resulted from higher British wages resulting from the British expending their labor into better opportunities than textiles (as is clearly the case today), then let them expend their labor in better opportunities.

    All in all, without trade barriers, I would expect Britain to have had a smaller, less labor-intensive, and more specialized textile industry than it actually had.

    The key to ending business support for protectionism is the permission of ownership of foreign means of production by domestic firms. Had British companies owned hundreds of textile plants in India, the protectionist call would have been much weaker in the U.K.

    If the guy said that; then he mustn't have been a free-trader, but merely a proponent of his own industry.

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    1. pithom

      basically there is one big problem with your proposition that in real world there is different elasticities of demand for imports and exports for different products which produced in any countries.

      if the ratio of elasticity is higher than unity (flexiable ratio) then its good for the country if on the other hand its not flexiable and prices dont change much the demand for the products in this case is stable no matter if there is devaluation of the currency or not and it will not help much and you will have continous balance of payment crisis.

      also you forget the increasing returns on scale which actually help the industry to compete worldwide (since capital is expensive and it take time to develop and employ enough capital to make an industry which will have increasing returns on scale) not to mention that its helping to national industries become capital intensive in the long run.

      specially industries which are strategic to development of good economy (ones which not suffer from diminshing returns from scale).

      about ricardo arguement for comparative advantage your welcome to look at this blog we spoke enough about that already to explain it to you again

      http://socialdemocracy21stcentury.blogspot.co.il/2016/07/erik-reinert-versus-ricardo-on-free.html

      now about the real world,the countries which were able to develop strong economy are almost exclusively countries which protected their industry from competition (usa uk germany japan taiwan china south korea even chile which sited as neoliberal success story from 1982 when neoliberalism is ended).

      now if you dont beliveve me i have a question for you

      Can you give examples of countries that prospered under unrestricted free trade policies, without being unusual, very small countries with lucrative service sectors (e.g., maybe Hong Kong), or (2) countries with some huge gift of high-value natural resources like energy, e.g., Saudi Arabia?

      Delete
  6. Why are people talking about the classic Ricardian two-good two-sector model??? That's about static welfare maximisation (current consumption), not about dynamic gains over time. No one uses the simple Ricardian model to argue about economic growth and development, although Bhagwati did create a neo-Ricardian model to model changing comparative advantage over time, and Williamson uses a neo-Ricardian framework to model deindustrialisation of the periphery in the 19th century.

    LK said:

    "So, wait, Pithom, the actual English cotton manufacturers of that time were screaming for protection because they would have been killed in the home market by a flood of cheap Indian imports, but *still** you think there would have been a viable, large cotton textile industry in the 1800s or 1810s without protection?

    None so blind as those who don't want to see!! Faith-based economics, hallelujah!"


    Wait, how is your interpretation more evidence-based than Pithom's view?

    Both of you are making implicit theoretical assumptions about how to interpret the historical facts. History does not speak for itself. You need theory to interpret it.

    Yes, it's plausible, a priori, that protection *gave* the British cotton industry the necessary time to develop its competitiveness. On the other hand, it's also plausible, a priori, that tariffs on Indian cottons in the late 18th/early 19th centuries *delayed* the development and diffusion of the power loom.

    There are historical cases to support either view. With the antebellum US cotton industry, it's widely acknowledged by economic historians that high tariffs were required as "infant industry protection". The only point of debate is whether the tariffs became unnecessary after 1830 or after 1850. In the case of the Japanese cotton industry, it became internationally competitive before 1911, when it gained tariff autonomy from the unequal treaties with the Western powers. The only question is how much non-tariff support it might have received from the government, but the early experiments in the state-owned model spinning mills failed and promoted the wrong technology.

    You can go on. The Napoleonic blockade helped the French cotton industry, as a kind of natural infant industry protection. The Russian industry in the 50 years before 1914 also required tariffs to exist, but it became dependent on them and Russian cottons never became internationally competitive.

    One might argue that's a general pattern. All countries have practised protectionism to promote industry. But the successful ones — the western countries and East Asia — managed to become internationally competitive. But the unsuccessful ones — most of the periphery including pre-ww1 Southern and Eastern Europe and Latin America — generally did not move to the internationally competitive stage.

    ( British India is an intermediate case. Although Indian hand spinning was wiped out by Lancashire under imposed free trade, hand weaving survived and Lancashire's market share peaked in the 1890s. As early as 1900, the Indian handicraft sector supplied about 1/4 of the cloth consumed in India, with Indian mechanised mills supplying ~15% which grew to almost 25% in 1910. Both sectors exported before WW1, largely to other Asian countries. India specialised in the coarser cloths, and Lancashire in the finer cloths — a reversal of the historical norm. )

    In East Asia one could argue the state made the difference through currency undervaluation and export subsidies. But in western countries in the 19th century, the tools of industrial policy were fairly blunt — mostly tariffs, sometimes cartels, otherwise you didn't have an activist bureaucracy to compel firms to compete internationally.

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  7. All the same, the case of British protectionism is special, because it's clearly not about technological leader versus technological follower, as in all those other cases mentioned above. In 1800, Britain was the clear technological leader, with spinning, carding, printing, and other linkages in cloth production already mechanised or in the early stages. Only weaving lagged, but the first power loom was invented in 1785, with the first commercially successful one patented in 1803 by Horrocks.

    As is well known, the development and diffusion of the power loom was pretty slow. As late as 1823, something like half the cloth output was produced by the hand loom sector. That implies a slower uptake of the new technology than spinning machines in 1770-90.

    Traditionally, that's attributed to technological issues in power loom development, but the early protectionism in the British cotton industry is seldom ever mentioned — something Parthasarathi and many other Indian writers (as well as global historians) constantly point out, except they mention protectionism as something helpful. But it's a double-edged sword, because protectionism can also stop being helpful.

    Power looms *were* in operation in parts of the British cotton industry starting from the 1790s, and they generally produced coarser fabrics for the export markets. So why weren't power looms adopted more and faster?

    The finer fabrics that most directly competed with Indian goods were woven by the hand loom sector, because in the early 1800s the machines could not yet reproduce the quality of the hand looms. So the tariffs protected the hand loom weavers — a de facto Luddite trade policy, a complement to the machine breakers.

    The tariffs kept prices on finer fabrics higher than they would have been under free trade, meaning more resources were allocated to producing finer fabrics than coarser fabrics. In that scenario, the tariffs on Indian goods should be seen in the same light as the Corn Laws, which certainly kept more resources tied up in agriculture.

    Under free trade, cheaper Indian cloths might have wiped out British hand loom weaving in the worst case scenario, but certainly the yarn sector would have more than survived. In the late 18th century, Britain's mechanised spinning sector produced much more yarn than could be absorbed by its weavers, and the surplus was exported (including to India).

    Did it matter that Britain might not have had a large weaving sector in 1790 or 1800 under free trade? Only if you think that was an important incentive to the mechanisation of weaving. Otherwise, who cares if hand loom weavers had been wiped out in 1800? They eventually got wiped out anyway, just more slowly.

    But would free trade have accelerated or slowed down the development and diffusion of power looms? That depends on your theory. Neo-Schumpeterian theories suggest — albeit based on modern evidence — technological laggards are discouraged by 'excessive' competition and exit the industry, but technologically ahead or neck-to-neck firms have a greater incentive to innovate.

    And there's some support from the earlier history of British cotton on this. The various innovations in mechanised spinning took place when most categories of all-cotton cloths were banned in Britain (1721-74), and only foreign markets (especially the American colonies, West Africa, and later continental Europe) were available as financial incentives. So who is to say the same could not have been true for weaving?

    By the way, the steam engine also diffused quite slowly, and to the extent that power looms were driven by steam, protective tariffs may have delayed the diffusion of both technologies.

    But it seems unlikely that the British hand weaving sector would have been reduced to a few shacks, because even the hand weaving sector exported some. Some hints about market shares under free trade could be simulated using the staggered increases in tariffs in 1800-30 as a natural experiment.

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