Friday, July 22, 2016

Friedrich List on English Free Trade and the Colonisation of Germany

Friedrich List saw right through the English argument for free trade in Germany in his National System of Political Economy:
“In our days the English legislation not having separated German agriculture from the British manufactures, Germany, with a progress of twenty years in an industrial career achieved at immense sacrifices, would he blind to allow herself to be diverted by the repeal of the English laws from the great national object she is now pursuing. We have, indeed, a firm conviction that Germany, in that case, ought to increase her duties as compensation for the advantage which the repeal of the corn laws would give to the English over the German manufacturers. For a long time to come, Germany can adopt no other policy toward England than that of a manufacturing nation yet far behind, but exerting all her energy to overtake, if not surpass her rival. Any other policy would endanger German nationality. If the English need corn or timber from abroad, whether they import from Germany or any other country, Germany must not strive less to preserve the advantages which her industry has already obtained, and to secure a greater progress in time to come. If the English are unwilling to receive the wheat and the timber of Germany, so much the better; her industry, her shipping, her foreign trade will increase the faster, her system of internal communication will be improved the sooner, and the German nationality will acquire the more certainly its natural basis. It may be that corn and timber in the Baltic provinces of Prussia will not advance in price as promptly in this case as if the British markets were immediately opened; but the improvement of the means of communication at home, and the demand for agricultural products, created by home manufactures, will proceed with a degree of rapidity far from unsatisfactory, in a market established in the very centre of Germany, a market not only established, but made permanent forever no longer oscillating, as heretofore, from one decennial period to another, between famine and abundance. With respect to power, Prussia, in pursuing that policy, will gain a real influence in the interior of Germany, of an hundred times greater value than the sacrifices made in her Baltic provinces; but she will merely have made a loan to the future at a heavy interest.

It is obvious that by means of this report the English ministry meant to obtain admission into Germany for the common articles of wool and cotton, either by the suppression or the modification of our specific duties, or a diminution of the rates, or by the admission into the English market of German corn and timber; this would be making the first breach in the protective system of Germany. The articles of general consumption are, as we have shown, by far the most important: they constitute the basis of the national industry. With a duty of ten per cent. ad valorem, as demanded by England, and the undervaluations which always attend the ad valorem system, German industry would be almost wholly sacrificed to English competition, especially in times of commercial crisis, when the English manufacturers are obliged to dispose of their goods at almost any price. There is no exaggeration in averring that the propositions of England tend to nothing less than the overthrow of the whole system of German protection, with a view to reduce Germany to the condition of an agricultural colony of England.” (List 1856: 469–470).
Now it is true that tariff protectionism, while it was used in Germany in the early and middle 1800s, was used to a far lesser extent than in America, nevertheless German protectionism in the18th and 19th centuries that forced industrialisation was significant.

First, the foundation for German industry had been laid in the late 18th century by a Prussian program of creation of cartels and monopoly rights, export subsidies, bringing in of experts on industry as well as skilled labour, and the outright conquest of Silesia from Austria, a stronghold of industry (Chang 2002: 33). The Prussian state program of industrialisation was continued in the early 19th century, under the Minister of Mines Friedrich Wilhelm von Reden (1752–1815) and Christian Peter Wilhelm Friedrich Beuth (1781–1853) (Chang 2002: 34).

Even the Prussian-led Zollverein (1834–1919), although it created a free trade zone within the area that would become the German empire, had a distinctly protectionist phase in the 1840s and 1850s (Bairoch 1989: 30–31).

After the 1840s and the proclamation of the German empire in 1871, Prussia continued its program of industrial subsidies, promotion of cartels and a highly successful system of higher education focussed on the sciences and engineering (Chang 2002: 35).

Despite a free trade interlude between 1862 and 1878 (Henderson 1975: 213), it was actually the case that the new German empire increased tariffs from 1879 until 1885, especially on iron and steel (Skarstein 2007: 358, n. 11; Chang 2002: 33; Feldenkirchen 1999: 98–99), once these industries started to feel the effects of free trade.

Other notable policies were that, between 1879 and 1895, the Prussian state nationalised nearly all its railways, and nationalised railways existed in seven other German states (Henderson 1975: 210–212); the profits from nationalised railways were an important part of government revenue, and so of public investment.

Bairoch, Paul. 1989. “European Trade Policy, 1815–1914,” in Peter Mathias and Sidney Pollard (eds.), The Cambridge Economic History of Europe. Volume VIII. The Industrial Economies: The Development of Economic and Social Policies. Cambridge University Press, Cambridge. 1–160.

Chang, Ha-Joon. 2002. Kicking Away the Ladder: Development Strategy in Historical Perspective. Anthem Press, London.

Feldenkirchen, W. 1999. “Germany: The Invention of Interventionism,” in J. Foreman- Peck and G. Federico (eds.), European Industrial Policy: The Twentieth Century Experience. Oxford University Press, Oxford and New York. 98–123.

Henderson, William Otto. 1975. The Rise of German Industrial Power, 1834–1914. University of California Press, Berkeley.

List, Friedrich. 1856. National System of Political Economy. J. B. Lippincott & Co. Philadelphia.

Skarstein, Rune. 2007. “Free Trade: A Dead End for Underdeveloped Economies,” Review of Political Economy 19.3: 347–367.

I’m on Twitter:
Lord Keynes @Lord_Keynes2

1 comment:

  1. Also note something that is often skated over: during the period of protectionism in the 19th century international war was rare. After the Napoleonic wars were over the 19th century is well known as a fairly peaceful time on the international scene. This peace was broken by the bungling in 1914 which shocked everyone but this bungling had to do with diplomatic breakdown and a stagnant political class; it had nothing to do with trade relations.

    The 19th century shows that free trade is not necessary for peace. Enlightened protectionism - as opposed to the warlike protectionism followed in the 18th and early 20th centuries - is perfectly synonymous with world peace.