Friedrich List: Kicking Away The Ladder

The long-contested and now falsely-debated point (.) of disequillibria.

[Addendum:
In case it is unclear as to the origins of this posting, I am responding in large part to the cited article in the point-link (.) above.
(And probably also from a little of the leftover ethos from the previous post)
Below is a sampling of the article, just to make it really clear.]

U.S. Steps Up Criticism of China’s Practices

WASHINGTON — The Obama administration increased its criticism of China’s economic policies on Thursday, as Treasury Secretary Timothy F. Geithner told Congress that China had substantially undervalued its currency to gain an unfair trade advantage, tolerated theft of foreign technology and created unreasonable barriers to American imports.

–The NYT, September 16, 2010

.
A refresher on Friedrich List may allow us to clean the blackboard of our minds from the choking chalk-dust of the modern myths of ‘orthodox’ history and economics, and consider the unvarnished events of history with an untainted eye.

First, a description of Friedrich List:

Some Methodological Issues: Drawing Lessons from History

The ninetheenth-century German economist Friedrich List (1789-1846) is commonly known as the father of the infant industry argument, namely, the view that in the presence of more developed countries, backward countries cannot develop new industries without state intervention, especially tariff protection. His masterpiece, The National System of Political Economy, was originally published in 1841.

List starts the book with a lengthy historical discussion. In fact he devotes the first 115 pages of his 435-page text to a review of trade and industrial policies in the major countries of the western world up to his time. Included in his survey were the experiences of Venice (and other Italian states), the Hanseatic cities (led by Hamburg and Lubeck), the Netherlands, England, Spain and Portugal, France, Germany and the USA.

Many of these accounts go almost completely against what most of us know (or think we know) about the economic histories of these countries. Particularly striking to the contemporary reader are List’s analyses of Britain and the USA — the supposed homes of liberal economic policy.

–Chang Ha-Joon [2002]

Friedrich List argued that Britain was actually the first country to perfect the art of infant industry promotion (ie. Protectionism), which in his view is the principle behind most countries’ journey to prosperity. He recommends that casual and uneducated proponents of ‘Free Trade’ (in its rhetorical and mythical meaning), first study the history of English industry closely. And this is his (ironical) summary of the British road to industrial success:

[H]aving attained to a certain grade of development by means of free trade, the great monarchies [of Britain] perceived that the highest degree of civilization, power, and wealth can only be attained by a combination of manufactures and commerce with agriculture. They perceived that their newly established native manufactures could never hope to succeed in free competition with the old and long-established manufactures of foreigners [the Italians, the Hansards, the Belgians, and the Dutch] … Hence they sought, by a system of restrictions, privileges, and encouragements, to transplant on to their native soil the wealth, the talents, and the spirit of enterprise of foreigners.

–Friedrich List, The National System of Political Economy
http://www.archive.org/details/nationalsystemof00listrich

And then in the following, where List’s famously sarcastic metaphor of “Kicking Away The Ladder” is given voice:

It is a very common clever device that when anyone has attained the summit of greatness, he kicks away the ladder by which he has climbed up, in order to deprive others of the means of climbing up after him. In this lies the secret of the cosmopolitical doctrine of Adam Smith, and of the cosmopolitical tendencies of his great contemporary William Pitt, and of all his successors in the British Government administrations.

Any nation which by means of protective duties and restrictions on navigation has raised her manufacturing power and her navigation to such a degree of development that no other nation can sustain free competition with her, can do nothing wiser than to throw away these ladders of her greatness, to preach to other nations the benefits of free trade, and to declare in penitent tones that she has hitherto wandered in the paths of error, and has now for the first time succeeded in discovering the truth.

–Friedrich List, The National System of Political Economy

List warned not to be taken in by the British ‘sleight-of-hand’; rather than follow the British in what they say (through Adam Smith’s ‘Free Trade’ laissez faire doublespeak), follow what they actually did (the successful practice of intervention and protectionism):

Had the English left everything to itself—’Laissez faire, laissez aller’, as the popular economical school recommends—the [German] merchants of the Steelyard would be still carrying on their trade in London, the Belgians would be still manufacturing cloth for the English, England would have still continued to be the sheep-farm of the Hansards, just as Portugal became the vineyard of England, and has remained so till our days, owing to the stratagem of a cunning diplomatist. Indeed, it is more than probable that without her [highly protectionist] commercial policy England would never have attained to such a large measure of municipal and individual freedom as she now possesses, for such freedom is the daughter of industry and wealth.

–Friedrich List

But then, Friedrich List was really doing no more than just following the example and teachings of the American founding father and economist, Alexander Hamilton:

Alexander Hamilton is sometimes considered the “patron saint” of the American School of economic philosophy that, according to one historian, dominated economic policy after 1861. He firmly supported government intervention in favor of business, after the manner of Jean-Baptiste Colbert, as early as the fall of 1781.

Hamilton opposed the British ideas of free trade, which he believed skewed benefits to colonial/imperial powers, in favor of U.S. protectionism, which he believed would help develop the fledgling nation’s emerging economy. Henry C. Carey was inspired by his writings. Some say he influenced the ideas and work of German Friedrich List.

–Wiki
http://en.wikipedia.org/wiki/Alexander_Hamilton#On_economics

And apparently, many countries later embraced American/Hamiltonian economics and policies in their own rise up the economic+developmental ladder:

From the 1860s onwards Japan’s Meiji leadership embraced Hamilton’s words and work as being valid to their own modernization requirement after touring America’s post-Civil War political and industrial landscape. Within the Grant Administration they found Hamiltonian advocates who opened up American financial and manufacturing operations for Japanese inspection. The Meiji leadership sent their sons to study American finance and industry in New York, New Jersey, Philadelphia and other centres of commerce. These same Japanese leaders found Hamilton’s words and work also being utilized by Bismarck’s administration in Germany, having been brought to Germany by Friedrich List in the 1840s after List had spent time in exile in Philadelphia. Later Hamilton’s reports to Congress could be found in libraries not only in Japan, but Taiwan and Korea, as they came under the colonial rule of Meiji Japan. Post-1945 leaders in both countries (South Korea is a divided nation) utilized Hamilton’s Report on Credit to establish their own modern financial systems.

–Wiki
http://en.wikipedia.org/wiki/Alexander_Hamilton#On_economics

Chang Ha-Joon puts it most succintly in this paragraph:

The USA as ‘the mother country and bastion of modern protectionism’

It was the USA, and not Germany as is commonly believed, which first systematized the logic of infant industry promotion that Britain has used so effectively in order to engineer its industrial ascent. The first systematic arguments for infant industry were developed by American thinkers such as Alexander Hamilton and Daniel Raymond, while Friedrich List, the supposed intellectual father of the infant industry protection argument, first learned about it during his exile in the USA.

The US government put this logic into practice more diligently than any other country for over a century (1816-1945). During this period, the USA had one of the highest average tariff rates on manufacturing imports in the world. Given that the country enjoyed an exceptionally high degree of ‘natural’ protection due to high transportation costs, at least until the 1870s, it seems reasonable to say that throughout its industrial catching-up the US industries were the most protected in the world.

–Chang Ha-Joon [2002]

.
So, Britain ascends, then kicks away the ladder and throws sand in the face of Germany and America by preaching Free Trade.
Then, the still-nascent nations of first America, then Germany, circle the wagons around their infant industries in Protectionism, to arbitrage their own ascent up the ladder.
Later, America having reached and displaced all at the top, eschews its own protectionistic past and takes on the mantle as the new preacher of Free Trade to the world, and frowned and clucked disapprovingly at the high-export-dependent economies of first Japan, then the Asian Tigers (but who really had only been diligently reading+following American/Hamiltonian economics) respectively in the 70s, 80s and 90s.
And now, shaking It’s star-studded and metal-spangled fists and ranting all the way up the Hill at the latest entrant to modern industrialization, China.

If you scratch under the surface of the Names (given by the myopic western press and academics), “Asian Development Model”, “Centrally-planned Economy”, “Social-Capitalist Economy”, “State-owned Entities and Intervention”, “Export-driven/High-trade-surplus Model” and so on; you just might find the hotly-seared and proudly-branded: “American Protectionism/Hamiltonian Economics”.
(Which is itself a defensive reaction to the latter British faux laissez-faire ‘Free Trade’ spiel.)

Sigh.
What goes around, comes around.
Just more of the same-old, same-old, again and again…
And this Great Game has actually been playing for much longer than just the three hundred or so years sketched out above.
It is at least as old as Man… and probably even older.

.
.
.

The above may be a little hard to accept and stomach for some.

[But actually, List and Chang had already been very polite and kept silent on the really gut-wrenching stuff:
The gunboats ‘trade’ diplomacy; the institutionalised inter-continent slave trade; the wanton looting of gold silver minerals; the pillaging of real agricultural commodities and resources; outright export of drugs and death at gun-point ; discharging pollutants into the world for 200 years gaily without as much as a zip-pah-dee-do-dah for the everyman’s A-dream of putting 2 cars in every clean-cut suburban home…

But of course, all these are not important when compared to how unfairly undervalued the Deutschmark, the Yen, and now the Yuan, are.
:)
]

-American School of economics

-Hamiltonian economics
-And the most important of Hamilton’s 3 reports of his economic program, the Report on Manufactures

3 thoughts on “Friedrich List: Kicking Away The Ladder

  1. Interesting article from the Washington Post, coincidentally relating to the 3 countries mentioned above, as a snapshot of the present:

    Germany rustles up big business in China

    By Anthony Faiola
    Washington Post Foreign Service
    Saturday, September 18, 2010

    VERL, GERMANY – As Americans fret over high unemployment and the prospect of another recession, an economic renaissance is putting Germans back to work and propelling the economy at a pace not seen since the fall of the Berlin Wall.

    Ask a German executive why, and you are likely to get the same one-word answer that slips like silk off Gunter Scheipermeier’s tongue: “China.”

    Vilified in the United States as a great sucking sound on the American economy, China is courted here as a revered client. Fast-growing demand from Asia’s giant is helping to fuel the strong German recovery, and Germany now stands as proof that a rich nation can profit off China’s rise.

    China passed the United States last year as the No. 1 overseas market for big-ticket German machinery, with Teutonic titans from Siemens to Volkswagen – which so far this year has sold 1.3 million cars in China, five times as many as it has in the United States – ramping up production and payrolls to fill Chinese orders.

    More important, China is driving growth at smaller German manufacturing firms like Scheipermeier’s Nobilia that form the true backbone of Europe’s largest economy. A family-run company making modular kitchens in a half-mile-long factory, where free-roaming robots work alongside humans on the most advanced assembly line of its kind in the world, Nobilia is treating nouveau riche Chinese like Americans of the 1950s – when nothing said success such as a sparkling, modern kitchen.

    […]

    Overdependence on China for exports growth, many here say, could hurt Germany as the economy there eventually cools. And German companies, like their American and Japanese counterparts, are facing increasingly sophisticated piracy threats from a nation where blackmarketeers can copy an entire BMW roadster or Mercedes sedan.

    But with showrooms in 17 cities and sales surging 40 percent this year alone, Nobilia now sells more kitchens in China than all but two domestic Chinese manufacturers, with no American challengers in the top 10.

    “China is vital to Germany’s future,” Scheipermeier said. If he has his way, he said, “Chinese duck will be cooked in kitchens more like those designed for German chickens than American turkeys.”

    A trade competition

    One thing is for sure: When it comes to building a healthy trading relationship with China, Germany is cooking America’s goose. U.S. exports to the world’s second-largest economy surged 25 percent in the second quarter of this year, but German sales to China grew twice as fast. Overall, German exports have jumped 17 percent this year, driven in large part by a 55 percent rise in China of imports. Although the United States still exports more to China in total dollar terms, adjusted for the size of their economies, Germany is now out-exporting the United States to China by a factor of three to one.

    Last year, Germany’s trade volume with China was $115 billion, while the U.S. trade volume with China was more than $370 billion. Like most nations, Germany suffers a trade deficit with China – or the difference between what it sells and what it buys. But it is nowhere near as much in the red with Beijing as the United States. In fact, during one month this year – February – Germany even came within a narrow $1 billion of chalking up a trade surplus with China.

    That is partly because of frugal German consumers, who unlike Americans eschew credit and save like mad. As such, Germany’s imports of cheap Chinese toys and TVs are ebbing, lower now than they were at any point since 2005. But it is also because of domestic manufacturing prowess that allows Germans to buy many products still made in Germany. At the same time, Germany has created the most finely honed export economy outside of China.

    […]

    “There are critics who say our manufacturing in the United States can never be competitive with China because of their wages,” said Scott Paul, executive director for the District-based Alliance for American Manufacturing. “But in Germany, you see a country that has wages and benefits at least as high as the United States, and yet they have managed a manufacturing base and trading relationship with China that we in the U.S. would love to have.”

    In recent decades, as countries including the United States and Britain put greater emphasis on financial services and property values, the Germans have hyper-focused on the art of manufacturing. Even relatively small German companies have grown into global market leaders for the products Chinese want, from drilling equipment to optical mirrors to prefabricated kitchens. Exports now account for more than one-third of Germany’s national output, more than double the rate in the United States, with Germany’s $1.2 trillion in annual exports roughly equal to the entire gross national product of India.

    In the aftermath of the financial crisis, Germany became the first major economy to exit the Great Recession. Unlike in the United States, the export-led recovery here is translating into jobs. In August, Germany’s unemployment rate stood near a two-year low of 7.6 percent, with some companies in Germany now complaining of a labor shortage and the need to loosen immigration rules. The U.S. unemployment rate is 9.6 percent.

    Few expect the pace of growth to continue, citing signs of a cooling off in China and economic uncertainty in Germany’s major markets in Europe and the United States. But after painful adjustments since reunification of East and West – including years of falling wages and high unemployment – there is a growing sense here that Germany is better positioned for prolonged, stable growth than it has been in years.

    “Why is Germany doing better than the U.S.? The answer is not so difficult,” said Hans-Jochen Beilke, chief executive of Ebm-Papst, the German ventilation company now dominating the Chinese market in refrigeration technology. “Our industrial base is simply much higher now than yours,” he said. “Look at the state of machinery manufacturing in your country. There are nearly no important American makers left anymore, and most of the ones you have now are German subsidiaries. And then, look at cars. Go ask the Chinese if they want to buy a BMW or a Ford.”

    […]

    http://www.washingtonpost.com/wp-dyn/content/article/2010/09/17/AR2010091707436.html

  2. Zip-A-Dee-Doo-Dah, Uncle Remus, Br’er Rabbit and the Tar-Baby.

    Zip-A-Dee-Doo-Dah:

    Brer Rabbit and the Tar Baby:

    Of the many word-imagery-allusions employed on this site, one of my favourite one has to be (from above):
    “discharging pollutants into the world for 200 years gaily without as much as a zip-pah-dee-do-dah for the everyman’s A-dream of putting 2 cars in every clean-cut suburban home…”

    After a near 200-year addiction to crude oil and becoming wedded and embedded to all its spoils and ills, we really must try to get out of this sticky situation and wean/scrape the Tar-Baby off ourselves.

    .
    .
    .

    I really really hope someone got it…
    :)

    Okay, now where’s my Briar Patch?
    I need to make like Br’er Rabbit (it is the Year of the Rabbit after all) and go jump in and hide there now…
    [But then, everything on this post…
    It’s the truth
    It’s actual
    Everything is satisfactual

    ]

    Zip-A-Dee-Doo-Dah Zip-A-Dee-A
    My oh my what a wonderful day
    Plenty of sunshine headed my way
    Zip-A-Dee-Doo-Dah Zip-A-Dee-A

    Mister blue birds on my shoulder
    It’s the truth
    It’s actual
    Everything is satisfactual

    Zip-A-Dee-Doo-Dah Zip-A-Dee-A
    Wonderful feeling
    Wonderful Day

  3. Pingback: Kicking away the ladder (continued) | Observation Obligation

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s