The Differences between Countries
and their National Economies
Supporters of the doctrine of cosmopolitan economics do not consider it necessary to trouble themselves very much either with the economic situation in particular countries or with the way
in which particular national economies can be improved. They simply wish to show that the maximum prosperity will be secured by the establishment of universal free trade in a world wide republic. They believe that nations can bring this about merely by abolishing all tariffs and by leaving individuals absolutely free to trade as they please.
From our point of view the problem is not so simple because we have to bring our doctrine of national economics into relationship with the actual situation in which particular states are placed. On approaching the problem we find that there are great differences between various nations. Some are civilised, some semi-civilised, and some are in a state of barbarism. There are giants and dwarfs among the states of the world. Some nations are strong while others are weak; some are enlightened while others are sunk in ignorance; some are industrious while others are lazy. Some countries are eager to adopt new ideas while others cling firmly to old established customs. Some nations enjoy liberty, some are only half-free, while others are enslaved. Some countries are skilful, some are not. Some nations are endowed with rich natural resources while others are entirely lacking in such resources. Some nations have only an agrarian sector of the economy, others have great industries and commercial activities, while others have developed an enviable balance between all aspects of economic activity. Do nature and common sense intend that one procrustean bed should accommodate all these different countries?
The lessons of history justify our opposition to the assertion that states reach economic maturity most rapidly if left to their own devices. A study of the origin of various branches of manufacture reveals that industrial growth may often have been due to chance. It may be chance that leads certain individuals to a particular place to foster the expansion of an industry that was once small and insignificant - just as seeds blown by chance by the wind may sometimes grow into big trees. But the growth of industries is a process that may take hundreds of years to complete and one should not ascribe to sheer chance what a nation has achieved through its laws and institutions. In England Edward III created the manufacture of woollen cloth and Elizabeth founded the mercantile marine and foreign trade. In France Colbert was responsible for all that a great power needs to develop its economy. Following these examples every responsible government should strive to remove
those obstacles that hinder the progress of civilisation and should stimulate the growth of those economic forces that a nation carries in its bosom.
Sound laws and institutions and an efficient administration can abolish fanaticism, superstition, idleness, ignorance, and wastefulness. They can abolish privileges and harmful institutions. They can improve education, foster liberty, and raise moral standards. They can attract foreign skill and capital. They can create new economic resources for the benefit of the nation. Obviously a single individual, without the support of the state, could achieve little, if anything, on these lines by himself.
It would, for example, be foolish for a tiny state to introduce a tariff since its own resources would be neither large enough nor diverse enough for it to survive on its own. Its internal market would be too small to support industrial growth. But what a tiny state cannot accomplish in isolation it can accomplish in association with other countries. This has recently been proved by the establishment of the German customs union.1 Prussia is a great power but its provinces are too scattered to enable it to establish an efficient system of tariffs, except in collaboration with smaller neighbours. Switzerland will never consider introducing a protective tariff but the Swiss cantons are in a position to secure a substantial expansion of their productive forces in various ways. They can disseminate technical knowledge, improve internal communications, conclude commercial treaties with foreign countries, and set up trading companies.
The Kingdoms of Naples, Spain, and Portugal can stimulate the growth of their productive forces by extending facilities for education, by protecting persons and property, by improving agriculture and mining, by encouraging people to work harder, by improving political institutions, by attracting capital and skilled labour from abroad, and by exchanging what they can produce for foreign manufactured goods. All this would be much better than imposing high import duties.
The South American states are in much the same position. Their protective tariffs have had the very opposite effect than they would have had in countries with progressive, industrious and inventive
1. [The Zollverein was established in 1834.]
2. [At this time each Swiss canton had its own customs duties. The federal government secured control over tariffs in 1848.]
populations which (like those living in the United States) live under advanced social and political institutions. In South America protective tariffs cannot at a stroke turn an ignorant people into a well educated, industrious and inventive people. Only a few weak factories would be established in South America (under the shelter of a tariff) and they would produce only expensive goods of poor quality. No competition would develop at home to encourage the manufacture of better goods at a lower price. In these circumstances foreigners would hesitate to invest their capital and skill in backward South American states which cannot even provide adequate security for persons and property. And if, by chance, in exceptional circumstances, a foreigner would venture his capital and skill in South America his sole object would be to make his fortune as quickly as possible before returning to his native land.
In backward countries the growth of industries would harm rather than benefit agriculture because the manufactured goods which are produced would be poor in quality and high in price. Such industrial undertakings would not buy sufficient quantities of raw materials or foodstuffs to be of any real benefit to the agrarian sector of the economy. But if the government of a backward country were to stimulate the importation of cheap manufactured goods from abroad and the export of raw materials and foodstuffs to foreign states it will gradually stimulate the demand at home for a greater diversity of manufactured goods. And this will happen at the very time that the people are securing the means by which they can buy the manufactured goods that they require. In this way people will be encouraged to increase the output of their farms so as to be able to buy manufactured goods from abroad. This will provide a stimulus to people to work hard and to save their money. Educational facilities will be extended and better standards of morality will be established. Political institutions, too, will be improved. In this way a backward nation can develop into a progressive state.
In the United States, on the other hand, the position is different. The country has a well developed agrarian sector of the economy; rich natural resources; a large domestic market; a progressive, enlightened, inventive, skilled, and venturesome population; and a very efficient political constitution. In this country the introduction of a protective tariff has fostered the growth of important industries based upon machinery and using raw materials produced at home.
The progress of other branches of industry which are still operated by craftsmen - such as silk weaving - will not be so satisfactory so long as labour costs are higher than in other countries. The productive powers of the country would be stimulated if such goods were purchased from abroad and were paid for by exporting raw materials and foodstuffs.
In Russia there are factors which hamper the development of industries by means of a protective tariff. They are the backwardness of the country, the absence of political liberty and the lack of a middle class. It will be necessary to abolish serfdom and to encourage the development of a middle class by granting a measure of municipal self-government to the towns. Only when this has been done will the beneficial results of the tariff become evident.
The situation in France and in Belgium is quite different. These countries possess all the prerequisites, all the conditions, all the means, and all the powers which are needed to achieve the maximum degree of industrialisation. The obstacles which once hindered the growth of modern manufactures in France and Belgium have been virtually all removed. These countries have already made great progress in industrial development and they have only to hold on to what they have achieved to expand their manufactures still further. Compared with England, however, France and Belgium can be regarded as only industrial states of the second rank.
Germany has the ability and the natural resources to become a manufacturing country but there are numerous difficulties which still prevent the attainment of full industrialisation and these have still to be overcome. Since it is only quite recently that the establishment of the Zollverein has made possible the introduction of a uniform tariff Germany is still well behind France and Belgium as far as industrial progress is concerned. Germany may be described as a manufacturing country of the third rank which has the ability to become a manufacturing country of the second rank.
We have shown that different nations have reached different stages in their development as industrial countries. Because of these differences, various countries will best be served by different types of protective tariffs.
1. [The Zollverein did not cover the whole of Germany when List was writing. The Tax Union (Hanover, Oldenburg, Brunswick), Hamburg, Bremen, Lübeck, Schleswig, Holstein, and the two Mecklenburgs had not yet joined the German customs union.]