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Protectionism: The infant industries argument

Summary:
One of the most common justifications for trade barriers is to enable developing countries to diversify and grow new industries to a size where they can benefit from large-scale production and compete against established competitors abroad. That is important to countries that need to diversify, such as those who are largely dependent on a single mineral or crop. And people fear that, since it is hard for individual governments to regulate multinationals, they can accumulate and use monopoly power to squeeze out competitors.But there are problems with the infant industry argument. For example, which new ‘infant’ industries should be grown? The choice may be made for political purposes more than any real prospect of economic success. And unfortunately, the infant industries never grow up.

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One of the most common justifications for trade barriers is to enable developing countries to diversify and grow new industries to a size where they can benefit from large-scale production and compete against established competitors abroad. 

That is important to countries that need to diversify, such as those who are largely dependent on a single mineral or crop. And people fear that, since it is hard for individual governments to regulate multinationals, they can accumulate and use monopoly power to squeeze out competitors.

But there are problems with the infant industry argument. For example, which new ‘infant’ industries should be grown? The choice may be made for political purposes more than any real prospect of economic success. 

And unfortunately, the infant industries never grow up. Precisely because they are protected from competition, they become inefficient and slow to mature. And you can be sure that the industries themselves will campaign hard to keep their protections.

Like all protectionism, this policy benefits a few producers while leaving consumers facing higher prices, poorer quality and less choice. There may be plausible arguments for trade barriers, but the infant industry argument is not one of them.

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Dr. Eamonn Butler
Eamonn Butler is Director of the Adam Smith Institute, rated one of the world’s leading policy think-tanks. He has degrees in economics, philosophy and psychology, gaining a PhD from the University of St Andrews in 1978.

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