Infant industry argument

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The infant industry argument is an economic reason for protectionism. The crux of the argument is that nascent industries often do not have the economies of scale that their older competitors from other countries may have, and thus need to be protected until they can attain similar economies of scale.

[edit] Reasons for protectionism

Fledgling industries typically require protection from the government in the form of tariffs, quotas, or subsidies in order to survive the lower prices and higher quality of the good or service produced by the industry on the international market. Proponents of the infant industry argument theorize that protectionism will allow the infant industry to grow and develop to the point at which it can compete on the international market without protectionist measures. Nurturing infant industries and import substitution policies often occur in developing nations which are aspiring to greater economic diversity.

Though this view is often criticized, it is true that such policies were pursued by many now-developed countries during their formative stages. The history is mixed. Though some countries that pursued infant industry promotion such as the United States, South Korea, and Taiwan were very successful, others were less so, especially in Africa and Latin America. The degree to which the economic "miracle" in Asia is due to protectionism generally and infant industries in particular is a matter of heated debate in academic circles.

Among theoretical academic economists, the infant industry argument is often derided, whereas applied economists and economic historians are generally more sympathetic to this viewpoint.^{[citation needed]}

[edit] Reasons against protectionism

Infant industries are by definition those that are not strong enough to survive open competition — they are dependent on government largesse and protectionism in order to survive. At a given point in time, protectionist policy, along with inefficient industries leads to higher prices and lower quality goods for the consumer than if the good or service produced by the industry was produced on the international market.

For these reasons the infant industry argument is often criticized. Firstly it is hard for government to know which industries will ultimately turn out to have growth potential. A lack of domestic capacity or unforeseen emergence of (even more superior) foreign rivals may, in fact, prohibit industries from becoming competitive in the long run. It is often the case that rather than developing or innovating, the protected industry becomes complacent, due to a lack of competition from the international market.

Since countries that put up barriers to imports will often face retaliatory barriers to exports, protectionism could hurt certain infant industries because the size of their potential market would be smaller.

[edit] Infant industry argument in popular culture

A Thomas Nast cartoon was showing the Democrats wanting to do away with protective tariffs. Nast appeared to make his cartoon against protectionism. A "Democrat donkey" is seen looking furiously at a rolled-up bill, which is dressed in a head covering and made to look like a nanny. The "nanny bill" is seen holding a full grown man marked with "infant industries", and exclaims to the donkey "Brute! Would you strike me with the child in my arms?" The point of this cartoon, particularly with an adult male marked "infant industries", was that the "infancy" of these industries has matured to a point where they no longer require protection.